Are home and auto sales holding back the recovery?
Over at EconBrowser, U.C.- San Diego economist James Hamilton argues that housing and auto sales typically play an outsized role in most recessions and recoveries. For instance, between the fourth quarter of 2007 and the second quarter of 2009, real GDP fell on average by about 2.7 percent per year, and autos and housing accounted for roughly half that decline. From a historical perspective, that’s not all that unusual:
Over 1947-2011, spending on motor vehicles and parts only amounted to 3.5 percent of total GDP on average, while housing was less than 4.7 percent. But the fluctuations in spending on new cars and homes are so volatile, these percentages change quite a bit over the cycle, rising well above average during expansions and falling in contractions.
The bleak news is that home and auto sales are still weak. New home construction is still at its lowest level since 1963. Sales of cars and light trucks have ticked up somewhat over the past few years, but are still solidly below pre-recession levels. The two big stimulus policies that Congress deployed to bolster these sectors — “cash for clunkers” and the first-time home buyer tax credit — mostly just seemed to shift the timing of sales slightly rather than increase overall levels. What’s more, while low interest rates should in theory nudge people to take out mortgages, that’s run up against the fact that banks have tightened their home-lending standards to “their strictest levels in decades.”
Hamilton points out that high levels of consumer debt and rising gas prices have been holding back spending. Which is just another way of saying what we already know — the economy is still limping along. And the still-evolving crisis in Europe still has the potential to make things much, much worse.