BUY THAT MAN A CAR
A 23-mile commute and the U.S.’s continued belief in the automobile.
James Robertson’s Honda Accord quit on him 10 years ago, and since then he’s been unable to afford a car. He lives in Detroit, but works in Rochester Hills, Mich., about 23 miles away. How does he get there? Well, the bus takes him part of the way, but he has to walk the rest of the commute to get to his US$10-an-hour job. He schleps a total of 21 miles a day. Every workday. And has for 10 years.
But not for much longer. Mr. Robertson, 56, became something of a media star earlier this week when a friend launched an online fundraising campaign to help him buy a car to get to work. The campaign’s target was US$5,000. By the middle of this week, Americans had donated more than US$250,000.
That should save Mr. Robertson a lot of money in shoes.
Besides being a testament to their philanthropic urges, the story of Mr. Robertson’s benefactors is also proof of Americans’ strong-held belief that owning an automobile is a necessity of life and just how willing they are to pony up for it. The question is: are they willing to spend on other stuff, too?
Amid plummeting oil prices and so-so corporate earnings south of the border, U.S. auto sales have been a real bright spot. This week, General Motors Co., Ford Motor Co., Fiat Chrysler Automobiles NV and Toyota Motor Corp. all reported strong growth for January, and industry projections are for a 15% increase in U.S. sales over January 2014.
For investors, of course, this matters — and not just for those who own stock in GM or Ford, or maybe Canadian auto-parts manufacturers such as Magna International Inc. or Linamar Corp., which have all been on an upward trend in recent weeks.
Beyond the obvious, strong auto sales matter for investors because they may be a bellwether of the spending intentions of American consumers, who account for more than two-thirds of the GDP of Canada’s largest trading partner.
A resurgent American consumer, even in this age of global trade, could be very good news for Canadians, especially those who work for or invest in companies that earn revenue in the U.S., or supply the raw materials for American homes, cars and luxury goods.
After several post-recession years of being unemployed, underpaid and underwater on their mortgages, the American consumer is suddenly back in the saddle — depending on how you look at it, of course.
There are indeed lots of positive signs. Job growth has been strong: the unemployment rate fell 0.2 percentage points to 5.6% in December, and posted a 1.1 percentage point decline through 2014.
Consumers are feeling pretty darned good about the economy, too. The Conference Board’s Consumer Confidence Index in January reached its highest level since August 2007 (oh, those were the days), and the number expecting business conditions to improve in the next six months rose as well.
Americans might be on pace to buy more automobiles than they have in a decade, but housing prices are also on the rise, albeit modestly, and builders began construction on more than a million new homes and apartments in 2014, the most in nine years, according to real estate data provider CoreLogic Inc.
Meanwhile, relief at the gas pumps is putting more money in Americans’ pockets — and people who have money usually spend it, right?
Maybe all this augurs a new age of American consumerism. But there’s a bit of a spanner in the works, and that’s wage growth.
The U.S. economy has been creating jobs at a decent pace, but average hourly earnings actually fell in December, and only rose by an anemic 1.65%, or about US40¢ an hour, through 2014.
Here’s a scenario, if you will, for what’s going on in a typical American consumer’s head. She’s got a job, and that’s good. Her home is worth more than it was. Credit conditions have eased, and interest rates remain at historic lows.
Our theoretical consumer, with a stronger balance sheet and cheap money, can get a loan and buy that car to get to work (and maybe even pledge a few bucks to the well-travelled Mr. Robertson). But she hasn’t yet felt the impact of that job and that strong economy where it matters most: in her pocketbook.
As a result, she hasn’t been spending. The U.S. Commerce Department earlier this week released numbers showing that consumer spending dropped in December, and it was the biggest monthly decline since 2009. Yes, some of that had to do with our model consumer paying less for gasoline, but there’s no indication she was spending it elsewhere.
To do more of that, she needs a raise.
The U.S. Bureau of Labor Statistics releases employment data for January, including wage growth, on Feb. 6. Watch it closely.
Auto sales ... may be a bellwether of the spending intentions