As I expected, U.S. demand for motor vehicles diminished in the first half of 2019 when compared with the same period a year ago. But the decline has been more modest than I originally thought it would be, at least so far.
In December, I wrote that the industry's numbers for 2019 would still be good by historical standards, just not quite as good as they had been in the recent past. I forecasted a decrease of 4 percent in both total U.S. motor vehicle assemblies and also light vehicle sales in the U.S. in 2019.
Vehicle sales had exceeded the robust annual total of 17 million units for the previous four consecutive years. I reasoned that consumer fatigue combined with higher interest rates and rising gas prices would offset the positive trends of higher wages and employment levels. The net result would be a moderate decrease, something like 4-5 percent, in demand for motor vehicles and parts.
Now that we are at halftime, I am raising my forecast for this year to a decline of just 2 percent. I am pleased to report that overall business conditions for the auto industry in the first half of 2019 were better than I expected, and I now must at least consider the possibility that conditions could improve in the second half of this year. Things could get worse, for sure. But some upside risks are also emerging.
I start my analyses and forecasts of the motor vehicle industry by looking at the trend in the monthly assemblies data. I have found it to be a better indicator of demand for domestically produced plastic auto parts. It is a manufacturing-based data series.
According to the Federal Reserve Board, total motor vehicle assemblies are down a little less than 2 percent through the first five months of 2019 when compared with last year. A close look at the chart reveals that the line ticked up a notch in May. This is because the number of assemblies last month registered a nifty gain of 8 percent when compared with the previous year. The highest probability is the data will revert in June and this uptick in May will be a blip in the trend. But then again, such upticks sometimes portend longer-term changes in momentum.