Unit Production High, but Part Production Slowing
Annual motor vehicle production is still at a historically high run rate of just over 17 million vehicles, however the annual run rate peaked in October 2015. The rate of growth, which is more important for forecasting than the current level, actually has decelerated since June 2012. Other than the huge spike resulting from the financial collapse in 2008, the wholesale inventory-to-sales ratio has risen steadily since September 2014 and is currently at an all-time high. Because of these trends, motor vehicle and part production has grown at a decelerating rate since July 2014.
New orders for motor vehicles and parts grew 1.3 percent in May compared with one year earlier. This was the 18th consecutive month of growth, although it was the weakest month of growth during that period. The annual rate of growth in new orders was still quite positive in May, but it has decelerated since its peak in June 2015. With the inventory-to-sales ratio steadily increasing, it seems likely that new orders will continue to grow at a slower rate and may even contract in the second half of 2016. This would put a damper on future part production.
The level of motor vehicle and part production is near all-time highs and well above the level prior to the financial collapse. However, in May, production contracted compared with one year earlier for the first time since October 2009. That is not a surprise based on the trends mentioned above. The annual rate of change in the production index has grown at a decelerating rate since July 2014 and will likely continue to do so into 2017.
Electronics Production Growth to Slow in 2016
May real disposable income was an all-time high of $12,579 billion dollars (seasonally adjusted at an annual rate). It grew 3.2 percent in the month compared with one year earlier, which was slightly faster than the historical average growth rate. The month-over-month rate of growth has decelerated the last two months, however, the annual rate of growth remained unchanged at 3.4 percent. Since July 2015, the annual growth has fluctuated in a very narrow band of 3.4 to 3.6 percent.
Despite the somewhat negative signal from disposable income, real consumer electronics spending has grown at a rapidly accelerating rate month-over-month since December 2015. The rate of growth has more than doubled to 18.4 percent, which was the fastest rate of month-over-month growth since August 2010. In my last report, annual growth in electronics spending had been relatively low and flat, but in the past six months, the annual rate of growth has accelerated to its fastest rate since October 2013. This was a very positive sign for electronics production, which was near its all-time high in May. The month-over-month rate of growth, currently 3.8 percent, was the highest since February 2015, and that rate of growth has accelerated since September 2015. This recent spurt of growth has not done much for the annual rate of growth in electronics production, however, which was still at its lowest level in more than 20 years, excluding the recessions of 2001-2002 and 2008-2009. Spending points toward accelerating growth in production later this year, which could be good for moldmakers.