It’s time to add another year to this interesting graph. Each dot represents one of the 58 years between 1955 and 2012. The x-axis shows the annual percent change in real GDP for that year and the y-axis is the percent change in new vehicle sales. Naturally, there is strong correlation. A correlation that quantifies just how much new vehicle sales have outperformed the overall economy in this recovery.
Two outliers are noted in the chart above. At the far right, close to the horizontal axis, we see that in 1966 new vehicle sales declined 2.1% even though real GDP grew by a very strong 6.5%. Why’s that? It’s because new vehicle sales had already increased dramatically in each of the prior four years. (New vehicle sales first exceeded the ten million mark in 1965.)
As an opposite case, note that in 1982 new vehicle sales declined by only 1.9% even though real GDP dropped by 1.9%. (Up until our recent recession, that was the largest decline in real GDP in post World War II history.) The disconnect is because new vehicle sale had already fallen significantly in 1979, 1980, and 1981, producing a peak to trough swing of 31%.
By just ignoring those two outliers, the R-square increases from .60 to .68 for the remaining 56 years plotted. If we also ignore 2010 to 2011, the R-square rises to .75.
Why ignore the last three years? Were they really outliers? Yes! Only three times in the past 60 years has a double-digit increase in new vehicle sales occurred when real GDP was growing less than 3.4%. Those three years came consecutively: 2010, 2011, and 2012.
Another factual tidbit: only one other time in the past 60 years have new vehicle sales increased at a double-digit rate for three consecutive years. That was 1971, 1972 and 1973. Hmmm…, 1974 wasn’t such a good year (trust me; I was an auto analyst at the time).
But don’t expect 2013 to be a repeat of 1974. It is true that strong cycles produce outliers. And that after an outlier there is a movement closer to the regression line. That will occur this year, but there is no reason to believe we will fall significantly below the regression line.
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