Consumer Goods Production Likely to Grow Slower
Real disposable income reached an all-time high in February at $12,464 billion (seasonally adjusted at an annual rate). This was an increase of 2.7 percent compared with one year earlier and virtually identical to the rate of growth in the previous three months. This also was the fourth month in a row that income grew less than the historic average of 3.1 percent. All income data since October was revised lower. The annual rate of change in real disposable income fell to 3.2 percent in February, the fourth straight month that this annual rate decelerated. While it was still above the historical average, it was the slowest rate of annual growth since April 2015.
As a result, real consumer goods spending has grown at a decelerating annual rate since October. It was still above the historic average rate of growth of 2.8 percent, but it appears that growth rate will decelerate further in the upcoming months.
Just as incomes and consumer goods spending have seen decelerating growth, consumer goods production has experienced decelerating growth for most of the last year. While the annual rate of growth (1.9 percent) has slowed, however, it is still fairly strong compared with the past decade, during which time the average rate has contracted by 0.4 percent. After very slow growth since October, the annual rate of change in consumer goods production is poised to grow at an even slower rate in the upcoming months.
Slower Growth in Automotive Production Ahead
The real 10-year treasury rate in February was 1.45 percent, the lowest it has been since May 2015 and below 2 percent for the second month in a row. Since the Fed announced in December it was raising its overnight rate, the real 10-year treasury rate dropped each of the following three months. Apparently, the market does not see things the same way as the Fed. The change in the real 10-year treasury rate decreased in February for the second consecutive month, indicating the rate of increase in interest rates compared with one year earlier is slowing down.
The recent trend in the interest rate indicates an upturn in real motor vehicle and part spending. However, there are concerns about the amount of outstanding consumer loans for new vehicles, particularly the amount of sub-prime borrowing. In fact, motor vehicle and part spending is growing at its slowest rate since May 2012.
Production has been growing at a decelerating rate since January 2015, and the rate of growth remains quite strong from a historical perspective. However, the trend in consumer motor vehicle and part spending will likely lead to further deceleration in motor vehicle and part production.