The release of much of the official U.S. economic data for the month of December has been delayed due to the government shutdown, but we have more than enough evidence to indicate that December was a pretty good month overall for the motor vehicle industry. Preliminary reports show that for the third straight month, the seasonally adjusted, annualized rate for U.S. light vehicle sales in December was greater than 17.5 million units.
The stronger-than-expected performance in the fourth quarter pushed the annual sales total for 2018 very close to, and maybe just a bit over, the total from 2017. This means that total vehicles sales (domestic plus imports) have exceeded 17 million units for four straight years. When the final data is released, I expect overall light vehicle sales for 2018 will be near 17.3 million units, which is just a shade better than the total from 2017.
A year ago, I forecasted that the motor vehicle industry would experience a moderate decline in sales in 2018 following the decrease in activity in 2017. Many analysts, including myself, believe that 2016 represented the cyclical peak in the motor vehicles data. As the chart indicates, there was an 8 percent drop in motor vehicle assemblies in 2017. My analysis of historical cyclical patterns combined with the prevailing trend of rising interest rates during the past couple of years led me to conclude that another moderate decline would follow in 2018.
But instead, the trend in the data for most of last year held steady and then it started to show some strength in the fourth quarter. The numbers are still below the levels from the "peak auto" year of 2016, but there should be no doubt in anybody's mind that 2018 was a strong year for the American auto industry.
In 2019, demand for light vehicles will continue to be supported by at least one more year of accelerating wage growth and rising employment levels. In addition to larger paychecks, tax returns are expected to hit an all-time high this spring. These trends will keep consumer confidence high, so as long as there are no dramatic changes to the macroeconomic fundamentals, households will continue to spend money freely. I expect that gasoline prices will also remain low by historical standards, and this, too, will be a supportive factor.