What Do Record Auto Sales Mean for Federal Interest Rates?

2 Jun 2015 Kion Kashefi

While most observers have taken the news that the major United States automakers are enjoying record monthly sales as a sign of the growing strength and continued improvement of the U.S. economy, there are some other effects that should be considered before getting overly excited. Yes, the dollar has regained some of its strength and this has buoyed concerned consumers, and declining gas prices have certainly encouraged the increase in car sales, but it is important to avoid overlooking the fact that this perceived consumer strength will very likely lead the United States Federal Reserve to consider raising interest rates.

It is for this reason that the true causes of the surge in auto sales should be evaluated more closely to determine whether the increase is indeed due to the current strength of the dollar and not simply a confluence of factors that boosted sales above the norm but do not hint at sustained success. The fact that, for example, many regions throughout the country have suffered through extended winters may have led to many potential buyers delaying their purchase. After all, automakers are coming off of a very poor sales month in April, so perhaps this recent May increase may be nothing more than a product of buyers waiting out the inclement weather before investing in a new vehicle.

The fact that the financial crisis kept many consumers away from the automobile industry for many years may also have something to do with this, and it is fair to say that consumer confidence is not exactly at an all-time high within the auto industry. To draw any sweeping conclusions over the strength of the entire United States economy due to one very strong month of sales following a very poor month seems to be a potentially significant error. This is especially true if the Federal Reserve is indeed considering a raise in interest rates simply due to a momentary increase in one sector, however important or sizable that sector may be.

Ultimately, consumers should be pleased that auto sales are on the rise, but the long-term health of the auto industry is hardly secure, and the idea that the automobile sector should serve as any reflection of the United States economy is incredibly flawed. The dollar may be stronger and more consumers may be buying cars, but to say that the economy is fully recovered and thriving to the point in which interest rates should be raised is a frightening proposition.

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