Bubble in Motor Vehicle Inventories? Precise Normalness!
In a separate report on inventories, the Commerce Department says that for May, the unadjusted retail motor vehicles inventory was -1.0%. However, the seasonally-adjusted inventory number was +1.1%. This is a 2.1 percentage point difference between the adjusted and unadjusted numbers.
Inquiring minds may be wondering if this seasonal adjustment is normal and whether or not there is a bubble in auto inventories.
Let’s address the questions with a look at charts and tables I created from a Census Data Download.
Motor Vehicle Sales
Motor Vehicles and Parts Inventories Seasonally-Adjusted and Unadjusted
click on chart for sharper view
The last line in the above table answers the question as to whether or not a two percentage point spread between the seasonally adjusted and unadjusted numbers in May is normal.
Whether the unadjusted number is -6.90%, +0.71% or anywhere in between, the Commerce Department pretty much takes whatever the unadjusted number is and adds 2 percentage points to it to arrive at the adjusted number.
Whether prices and discounts are rising or falling does not seem to matter.
New Car CPI
CPI Used Cars – Percent Change From Year Ago
Change in Private Inventories New and Used Cars
In the fisrt quarter, numbers released just today, the CIPI for new and used cars was -$10.1 billion.
CIPI Autos vs. Overall
Real CIPI Autos vs Overall
Inflation-adjusted, the first-quarter change in real private inventories at new and used car dealers was +27.2 billion vs a Nonfarm total of +7 billion!
Inventory Contribution Second Quarter
Nearly everyone is expecting a huge second quarter rebound in inventories. I fail to see why. That does not mean it won’t happen.
This morning, in New Measures of “Satisfactory”: First Quarter GDP Revised Up to a “Satisfactory” 1.4% I quoted Rick Davis at the Consumer Metrics Institutes as follows:
“It is important to remember that the BEA’s inventory numbers are exceptionally noisy (and susceptible to significant distortions/anomalies caused by commodity price or currency swings) while ultimately representing a zero reverting (and long term essentially zero sum) series.”
GDPNow has CIPI for second quarter adding .69 percentage points.
Given wild jumps in CIPI we can expect anything. CIPI aside, I would have weaker numbers for PCE, residential investment, and nonresidential structures.
Returning to autos, it will take huge discounts to clear existing inventory levels in light of weakening sales and warnings from GM. Price pressures on new cars will in turn impact prices of used cars.
Auto Sales vs. Inventory Build
- June 28: Wholesale and Retail Inventories Rise Led by Autos: Diving Into Seasonal Adjustments
- June 26: GM Says “Market is Definitely Slowing” Lowers Outlook for Vehicle Sales
- June 1: Motor Vehicle Sales Flat, Hope Turns to Second Half: What About Fleet Sales? Incentives?
- May 2: Auto Sales Puke Again: Year-Over-Year Totals: GM -6%, Ford -7.2%, Toyota -4.4%, Fiat-Chrysler -7.0%
- April 3: Auto Sales Final Numbers: Down 5.7%, Two-Year Low; Don’t Worry, It’s Just a Plateau!
Yes, there is a bubble in auto inventories, new and used.
Mike “Mish” Shedlock