Thursday, June 11, 2009

Great Depression II? Not Even Close.

According to the most recent (May 15, 2009) Philadelphia Federal Reserve Survey of Professional Forecasters, annual real GDP will decline by -2.8% this year and then increase next year by +2%. Assuming that is the case, the -2.8% decline in annual real GDP in 2009 during this recession won't be anything close to the -25.6% cumulative decline in real GDP from 1930 to 1932.


At 6/12/2009 1:00 AM, Anonymous Anonymous said...

One thing that will help GDP (and employment figures) going forward: new vehicle sales. I just came across an interesting stat - going all the way back to 1982, there have only been five months when new vehicle sales have come in below an annual rate of 10 million units:

January 2009
February 2009
March 2009
April 2009
May 2009

As I've said here before, 13-14 million vehicles are sent to the junkyard each year due to accidents and old age. Given such depressed new car sales, a dwindling (and increasingly more expensive) used car supply, and an ever-growing population, this dam is going to break very quickly very soon.

At 6/12/2009 8:29 AM, Anonymous ListenEllipse said...

But if this isn't a great depression then how can we have a New New Deal. The economy better not turn around that fast, Obama still has trillions he wants to spend on "emergency" programs.

At 6/13/2009 3:06 AM, Blogger Robert Miller said...

Anon, you've said it more than once and your argument is fallacious more than once.

Cars in a junkyard are often parted out for accident and maintenance repairs. By no means do current falling new car sales coupled with an historical retirement rate mean a "dam is going to break".

If economic times are bad, unemployment is rising, and credit tight, the retirement rate of used cars will FALL. People will repair used cars at higher rates. This could account for the rising prices of wholesale cars. You provide data showing new car sales have dropped yet you ASSUME used car retirement rates remain constant. Show us data that cars are being junked at the same rate and I might believe you.

I have no idea whether that's true but it must be explored before reaching your conclusion. It's a gaping hole in your argument. The Manheim report concluded rental car retirement rates have fallen. I have no reason to think current auto owners aren't doing the same, notwithstanding a tax credit.

If people aren't buying as many new cars, are not trading in as many cars, and wholesale prices of used cars is rising it MUST indicate supply of used cars is dropping and or demand is rising. That has a strong implication that used cars are being maintained at higher rates.

The historical rate is not a constant. A well maintained car can run for hundreds of thousands of miles.

At 6/13/2009 12:11 PM, Anonymous Ronan L said...

Interesting data, but a global perspective is always useful... and not as cheery:


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