Jim Hamilton Assumes the Role of Dr. Doom

Jim Hamilton writes:

Econbrowser: Recession and the oil shock of 2008: [T]his seems to be unfolding according to [the] script. The dramatic abandonment of gas guzzlers by American consumers continues, with last month's sales of domestically manufactured light trucks (which includes the once almighty SUV category) down 28% from June 2007. Sales of imported SUVs, which had been holding up better, plunged even more dramatically. For the lighter car category, sales of domestics fell 13%, while imported cars, which tend to get better mileage, eked out a 4% gain....

The shift is a necessary change in the long run, but in the short run will definitely put additional strains on the U.S. economy, as it's precisely this kind of disruption in domestic spending that appears to be responsible for the contribution that historical oil price shocks have made to previous U.S. economic recessions. FT conveys some of the gloom:

The US car market is heading for its worst year in more than a decade as Americans turn their backs on large, gas-guzzling vehicles, according to June sales data due out today.

The figures come as the big US carmakers scramble to adapt to the dramatic shift in demand to more fuel-efficient cars and crossover vehicles. Chrysler yesterday said it would close a US minivan assembly plant and cut one of two shifts at a pick-up truck site. Chrysler's move will result in 2,400 job losses at the plants, both in St Louis. There are even dark murmurs that GM, once the biggest company in America, could conceivably be forced into bankruptcy...

This makes me think that is time to start sending out more stimulus checks--advances on next April's refund checks.

Comments

[dilbert dogbert]

Just got our $1200. So far spending it on Arbutus Marina trees for the back yard. Does this count or should I have bought bit more diesel for the old pickup or should I have bought that new GM diesel pickup I have been lusting for? BTW when will Toyota come out with a big diesel pickup? When will they come out with a small turbo diesel car that gets 60-70 mpg? Diesel at $5 a gallon does make one a bit nervous about buying a diesel powered car/truck.
This taking money out of pocket left and putting it in pocket right is sure making me feel flush with cash!

[christofay]

Yes, just what we need, more borrowing from the future to pay for consumption today. My plan would be to shut down spending on Iraq/Iran and bringing those benjamins home.

[Gegner]

It is exceedingly disturbing that the US government feels 'compelled' to send out 'stimulus checks' at all that illustrates the 'imbalances' in our 'income distribution'.

If your workers (who are also your customers) cannot afford your products, then who are you making them for?

More disturbing is how our GDP numbers fell from 4.7 to .06 once our 'engineered financial products' market 'froze up'.

Where is the engine of our economy?

The short answer is there isn't one.

[Gegner]

It is exceedingly disturbing that the US government feels 'compelled' to send out 'stimulus checks' at all that illustrates the 'imbalances' in our 'income distribution'.

If your workers (who are also your customers) cannot afford your products, then who are you making them for?

More disturbing is how our GDP numbers fell from 4.7 to .06 once our 'engineered financial products' market 'froze up'.

Where is the engine of our economy?

The short answer is there isn't one.

[a]

Consumption does not produce prosperity. Consumption follows from prosperity.

[Neal]

The problems affecting the auto industry--high priced vehicles unaffordable, low mpg vehicles with unaffordable driving costs, market for used low mpg vehicles dead, people underwater in existing vehicles, less easy credit, falling home equity--all point to years of problems for the auto industry.

Just because there are high mpg vehicles available doesn't mean that people will be able to run out and buy them. Like being trapped in a house you can't sell, you can be trapped with a vehicle that you can't afford to replace.

Look for a lot more rusty and dented cars out on the road in the next few years. Just think of how few of those that there have been the past few years. The recent habit of replacing a vehicle every couple years is on it's way out.

Could you roll over 30K of car debt onto a 15K KIA purchase? Doesn't seem really likely at this point.

[save_the_rustbelt]

Sending out rebates in anticipation of refunds would be an administrative nightmare, as we don't know who will get a refund next year.

Can you imagine the IRS asking millions of low income people for money in early 2009?

How about a general fund rebate for any taxpayer making less than $20,000 in 2007, calculated by multiplying $15000 x FICA tax rate = approx $1500.

Not perfect but easy to administer.

[Lord]

We just had another minimum wage bump for July. That should help.