Strong U.S. consumer spending might lose a pillar of support. Auto sales have been a bright spot for overall U.S. retail sales of late, mostly holding up in good months and bad. Even in July, when retail sales missed expectations, sales at autos and parts dealers rose.
But disappointing auto-industry figures unveiled earlier this month are a concern. And it is the auto dealers that might go from positive catalyst to deterrent in Thursday’s retail-sales report, one of the final major economic data points the Federal Reserve will consider before its highly anticipated policy meeting next week. The auto business is highly cyclical. Its strength in recent years, fueled in part by cheap credit and low gas prices, is now feeling the strain. Easy lending conditions might have pulled future demand forward. That helps results in the short run, but could prove problematic over the longer term.
And as overall consumer spending has held up admirably, it has mainly been driven by segments most-affected by low interest rates and a strong housing market. In addition to motor vehicles, sales of furniture and building materials have been particularly strong this year, contrasting relative weakness in clothing and electronics. But if people are spending less on autos, the question is whether they are shifting their spending elsewhere, or if they are cutting back overall. A declining auto market would make healthy consumer spending that much more difficult to sustain.
