The price of oil rose from $80 a barrel in September 2007 to average $134 in June 2008. The toll this took on the U.S. auto industry was in my mind an important factor that contributed to the first year of the Great Recession in 2007:Q4-2008:Q3. Given the recent concerns about oil supplies in North Africa and the Middle East, it’s useful to review what happened three years ago and relate it to where we stand at the moment based on the February auto sales data that were just released.
Americans bought 990,000 light vehicles in February. That’s up 27% from Feb 2010 and up 44% from Feb 2009. It’s still 21% below the February 2007 levels, but we’re finally more than half way back up.
When oil prices were rising quickly in early 2008, sales of domestically-manufactured light trucks (which includes SUVs) plummeted, even as sales of more fuel-efficient imports were going up, as you can see from following the dark blue bars on the two charts below. As I noted in a paper presented at a Brookings Institution conference in 2009, in the absence of this hit to the domestic auto industry, U.S. real GDP would have grown by 1.2% over 2007:Q4-2008:Q3, a period now recognized as the first year of the Great Recession.
Looking at where we stand right now in 2011, domestic light truck sales have certainly been part of the rebound, and rising oil prices could easily take a bite out of that. But SUV sales are still far enough below even February 2008 values that it wouldn’t represent the same size hit to GDP as we experienced in the spring of 2008 even if light truck sales were to decline from here back to the levels of June 2008. On that basis, I conclude that the recent oil price run-up can’t cause the same dollar reduction in GDP today that we watched occur in 2008.
Moreover, I also want to read the latest auto sales figures in conjunction with the many other indicators we’ve been getting of a strengthening economy, such as continuing gains in disposable personal income and a very strong ISM manufacturing report. Looks to me like the recovery continues to gain momentum. But I think March auto sales will be a critical indicator to be watching.