Yesterday’s revision to GDP showed a weaker recovery since the Great Recession – and, as a result, emphasized further just how much autos have outperformed in recent years.
In the graph below each dot represents one of the 60 years between 1955 and 2014. 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 a strong correlation. And, naturally, there will be outliers since it is based on simple annual percent changes.
For example, in 1966 new vehicle sales declined 2.1% even though real GDP grew by a very strong 6.6%. 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%. 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 .56 to .64 for the remaining 58 years plotted. If we also ignore the past five years, the R-square rises to .74.
So how strange (“new normal”) have the last five years been: Consider this:
- 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 3.3%. Those three years came consecutively: 2010, 2011, and 2012.
- Only once have new vehicles increased in a year in which GDP grew less than 1.5%. That happened in 2013.
- 2014 was closer to the trend line (5.9% new vehicle sales growth and 2.4% GDP growth), but still it represented the fifth consecutive year above the regression line.
(This year will get us a little closer to the regression line, but we will still be above it.)