Automotive and Electronics
Motor vehicle unit production is high, but part production is slowing; electronics production growth also is slowing.
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.