The Fake Economic News Bubble

January 6, 2017

The headlines are reporting that auto sales in December hit a record, when looked at on a “seasonally adjusted annualized rate” basis. No one questions the validity of the seasonal adjustments. The average news consumer sees or hears the headline word-byte/soundbyte and that becomes the truth. Fake economic news is another form of Establishment propaganda: seduce the populace into believing what you want them to believe rather than presenting the truth. It’s Jim Sinclair’s “MOPE:” Management of Perception Economics.”

Along with the geopolitical and domestic political fake news epidemic is an epidemic in economic fake news. Collectively it’s a “fake news bubble,” with one of the highly insidious consequences of this bubble being the messy abortion otherwise known as the “Presidential election.”

Turning to the auto sales fake news, based on the SAAR estimates, automobile sales allegedly hit a selling rate of 18.2 million units in December. But seasonal adjustments notwithstanding the facts, does the data fit the facts of the related areas of consumer spending? By this I mean restaurant and retail sales.

Though not reported yet for December, restaurant same store sales declined 1.3% in November from October and dropped 3.3% from November 2015. It was the ninth consecutive month of negative same-store sales and the worst decline since July. Perhaps with constrained disposable income, consumers cut out restaurants to buy holiday gifts?

Looking at what we know about retail sales during the holiday period so far, First Data reported that holiday spending is up 2% vs. last year (through Dec 12). Last year that number was 2.4%. So there’s a deceleration in retails sales growth spending. Cowen research reported that foot traffic at malls was down 10% in December through December 17th. Granted online sales growth of 9% this holiday season is taking some mall spending away, but online spending represents only 8% of total retail sales spending. I guess maybe consumers cut back on holiday gifts this year to spend $40,000 (average cost of a new GM car according the auto sales report) on a new car?

Finally, I cover two companies that provide subprime auto loans. Both companies were reporting declining loan application volume in their last financial reports. Interest rates spiked up 100 basis points during November and December, which means the cost of auto loans spiked up as well. Even though auto lenders are reporting lowered loan application volumes, we’re to assume that – despite significantly higher interest rates – consumers decided to skip eating out and buying holiday gifts in order to buy a new car during December?

Does any of this make sense? To make matters less believable and uglier, GM reported that its unsold inventory of cars sitting on dealer lots exploded to 844,942 cars in December, a nearly quarter of a million unit increase over December 2015. Call me skeptical but I would suggest that a large portion of those cars sitting in dealer lots were counted as sales when the cars left the factory floor.

The likely source of “record” auto sales is in the “seasonal adjustments” that are applied to the data. Moreover, I would suggest that the data itself is suspect. I would like to see a study that correlates a “sale” with the actual transfer of title to either an auto finance company or to a buyer who paid cash – i.e. tie a “sale” to an actual end-user taking delivery and driving off the lot. THAT number, based on all of the related supporting evidence as detailed above, is likely a much different (lower) number than what was reported.