With inflation fears eased following the Fed's decision to inch up rates, Nomura Securities' Chief Economist David H. Resler predicted a pattern of stable growth for the U.S. economy, including home sales and corporate profits heading into 2005, while speaking to the press last week. However, a slowdown in consumer spending and a sluggish growth in exports created soft patches that emerged in the second quarter, such as the auto sector.

 

"Nowhere were the ups and downs of spending more obvious than in the motor vehicle market," said Resler. "Auto sales have slowed."

 

Annualized light vehicle sales have gyrated widely from a high of 17.7 million in May to a low of 15.4 million one month later. While swings in sales volumes have become normal in the motor vehicle market, "they generate uneven aggregate spending patterns that muddy the assessment of underlying trends. Consumer spending in [the auto industry] is stable but not necessarily month to month," he said

 

Alongside decreased sales, the scrap rate of old vehicles has slowed.

 

"The average age of the existing fleet of privately owned cars has increased," Resler said, noting that $13.3 billion in sales is necessary to replace the aging car stock. A portion of the decreased scrappage is due to a run up in energy costs as well; in fact, increased energy costs were a large factor in the slowdown in consumer spending. According to Nomura, consumers spent more than 5.5 times their normal share of gasoline spending in the second quarter, leaving less cash to burn.

 

But a slowdown in consumer spending is no cause to worry about the housing market, the economist said. Refinancing is a mechanism by which "people extract wealth gains in the value of the property itself," Resler said, and is therefore independent from consumer spending swings. -- CMO

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