Automakers Are Having a Record Year, but Here’s a Trend that Should Worry Them

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Automakers Are Having a Record Year, but Here’s a Trend that Should Worry Them

iStockphoto

By Michael Rainey

September 2, 2015

U.S. auto sales closed out the summer on a positive note, topping estimates and casting some rosy light on the health of the American consumer. Recording its best August since 2003, the auto industry is on pace to sell 17.8 vehicles in 2015, well ahead of expectations of 17.3 million. If the numbers hold up, 2015 will be the best year ever for U.S. auto sales, beating the 17.4 million mark set in 2000.

The general consensus is that auto industry is in pretty good shape these days. Gas prices and interest rates are low, boosting the market for cars and light trucks. More than 2 million jobs were added to the U.S. economy in the past year, and more jobs is usually good news for auto sales. The unemployment rate has been trending lower for five years, sitting at a relatively healthy 5.3 percent in July.

As with any statistic, though, there’s more than one way to look at the situation. Sure, auto sales are climbing as the economy gets stronger and more Americans hit their local car dealers’ lots. At least to some degree, though, higher auto sales should be expected just as a result of U.S. population growth. And those rising monthly sales figures are masking a continuing trend that is more worrisome for the auto industry: per capita auto sales are still in a long-term decline, even including the solid growth the industry has seen since the end of the recession. Doug Short at Advisor Perspectives did the math and made a graph:

According to Short’s analysis, the peak year for per capita auto sales in the U.S. was 1978. As the red line in the graph shows, the trend is negative since then.

In the graph, per capita auto sales in January, 1976, were defined as 100; the readings in the index since then are relative to that 1976 sales level. As you can see, the index moves higher until August of 1978, when per capita auto sales were up nearly 20 percent over 1976. Since then, per capita auto sales have fallen, reaching a low in 2009 that was nearly 50 percent lower than 1976. Since 2009, per capita auto sales have risen nicely, but are still more than 15 percent below peak.

What could explain the negative trend? Two factors come to mind. First, demographics. It has been widely reported that the millennial generation is less interested in owning cars for a variety of reasons, ranging from a weak economy to a cultural shift away from suburban life. However, the data on millennial car purchases is ambiguous; recently, millennials have started buying cars in volumes that look a lot like their elders. And even if millennials are less interested in buying cars, their preferences can’t explain a shift that began in the 1970s, before they were born.

The other factor that may explain the trend is income inequality. A study of car ownership by the Carnegie Foundation found that countries with higher income inequality have fewer cars per capita. The logic is simple: As more income is claimed by the wealthy, there’s less to go around for everyone else. And that means there’s less money for middle and lower income groups to buy and maintain automobiles, among other things.

Here’s a chart of the Gini index for the U.S. since 1947. (The Gini Index is a widely-used measure of income inequality. A higher Gini number means higher inequality.) Note that the Gini reading started climbing in the late ‘70s – the same time when per capita car ownership in the U.S. began to fall.

This chart tells us, not for the first time, that the U.S. has experienced more income inequality since the 1970s. Combined with the per capita auto sales data above, it suggests that as the rich have gotten richer and everyone else has struggled to keep up, car ownership has suffered. Although this is by no means proof of the relationship between income inequality and per capita car ownership over the last 40 years, it hints at an interesting theory – and suggests that the auto industry has good reason to be concerned about growing inequality in the U.S.

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Fast Cars and Rampaging Dinosaurs Help Universal Shatter Box Office Record

Universal Pictures

By Millie Dent

August 6, 2015

High-speed car chases, dinosaurs run amok and yellow, pill-like creatures helped Universal Pictures bring in more money this year than any other studio in movie history.

Universal announced Wednesday that the studio has grossed $5.53 billion in worldwide box office so far this year, setting an industry record. The Comcast-owned studio has pulled in $3.59 billion internationally and $1.94 billion domestically.

Three global box office hits -- “Furious 7,” “Jurassic World” and “Minions” -- were the most successful films for the studio. “Furious 7” and “Jurassic World” have each brought in over $1 billion already, with “Minions” expected to top $1 billion after its Sept. 13 debut in China. Universal is expected to become the first studio to release three films in one year that each took in over $1 billion.

And there are still some big films slated to be released by Universal before the year is out, including the N.W.A. biopic “Straight Outta Compton,” “Steve Jobs,” and the Tina Fey and Amy Poehler comedy “Sisters.”

20^th Century Fox held the previous record for annual box office, grossing $5.52 billion in 2014.

These Women Are Now Earning Almost as Much as Men

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By Beth Braverman

August 6, 2015

That women earn 77 cents for every dollar a man makes has been chronicled and discussed at length, but a new analysis by economists at the Federal Reserve Bank of New York finds a far smaller gap among recent grads.

The country’s youngest (ages 22 to 27) female workers earn roughly 97 cents on the dollar compared to their male peers, when controlling for major and field of employment. For many majors, they actually earn more.

Any early advantage disappears, however, once workers hit mid-career, with men earning 15 percent more than women across the board. Even in majors where women earned more during the early years of their careers, men earn more by age 35.

Researchers point to several potential reasons for the reversal, including possible gender discrimination and women’s tendency to scale back their careers to bear and raise children.

“Because raising a family often requires more flexible schedules, those with family responsibilities who have difficulty satisfying time-sensitive work demands may face lower wages in these types of jobs,” the authors write. “In fact, in jobs where such time demands are largely absent, and more flexibility is possible, the pay gap has been found to be much smaller.”

For some women, that means leaving the workforce entirely. The percentage of women age 25 to 54 who are working has fallen to 69 percent since peaking in 1999 at 74 percent, following a 60-year climb.

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Facebook Patents a Technology That Could Use Your Social Network Against You

DADO RUVIC

By Millie Dent

August 5, 2015

All that data Facebook has been gathering on you and your friends could someday be used to approve -- or deny -- your application for a loan.

Facebook was just granted an updated technology patent for “authorization and authentication based on an individual's social network.” This innocent-sounding technology can no doubt be applied in a multitude of ways, many of them benign. But one troubling use of the technology consists of assisting lenders in discriminating against a borrower based on his or her social network connections.

The patent application explains that a lender can use the technology to examine the credit ratings of members of the social network of the individual who is applying for a loan. If the average credit rating of the social network reaches a minimum, pre-defined level, the lender moves forward with the loan process. If the average credit score is too low, the loan application is rejected.

The new technology raises concerns about potential unjust bias, but banks would most likely use it as an additional factor in the loan approval process, not as an end-all metric. The Equal Credit Opportunity Act imposes strict guidelines as to what factors creditors can use when determining whether to approve a loan. It’s unclear if Facebook’s new technology falls under the criteria the federal law defines – things like income, expenses, debt and credit history.

Another fear involves predatory lenders. People rejected for loans through this process would make a nice customer list for unscrupulous financial operators.

Some of the less worrisome uses of the technology include preventing spam email and inappropriate content and improving the accuracy of searches. At this point, it’s not clear how Facebook plans to implement the new technology. Let’s hope the social networking giant stays on the sunny side of the street on this one.

Top Reads from the Fiscal Times:

Facebook Patents a Technology That Could Use Your Social Network Against You

DADO RUVIC

By Millie Dent

August 6, 2015

All that data Facebook has been gathering on you and your friends could someday be used to approve -- or deny -- your application for a loan.

Another fear involves predatory lenders. People rejected for loans through this process would make a nice customer list for unscrupulous financial operators.

Top Reads from the Fiscal Times:

This Is What America’s 'Dream Home' Looks Like

Trulia

By Beth Braverman

August 5, 2015

The dream home for today’s American consumer is just over 2,000 square feet and located outside of a major city, according to a report out today by Trulia.

Consumers polled by the real estate Web site said the top features in their dream home were a backyard deck, a gourmet kitchen, and an open floorplan.

Owning a home is still part of the American dream for 70 percent of those polled, down from 77 percent five years ago. The portion of Americans who want to buy a home one day was highest—hitting almost 90 percent—among millennials.

Those findings echo the results of a Wells Fargo poll in June, which found that nearly two-thirds of consumers say that home ownership is a “dream come true” and an accomplishment to be proud of.

Despite the desire for home ownership, only 14 percent of those surveyed by Trulia said they would buy a home this year. Nearly 70 percent said they planned on waiting at least two years to make a purchase.

The country’s home ownership rate fell to 63.7 percent in the first quarter, the lowest level since 1989. The rate peaked at 69.2 percent in the fourth quarter of 2004, right before the housing bubble burst.

Just 36 percent of millennials who want to buy a home are currently saving to purchase one. As rents in many cities continue to skyrocket, however, homeownership may become more appealing.

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