US growth, such as it is, has lately been driven by a handful of hot
sectors. Car sales have set records, high-end real estate is generally way
up, and federal spending - based on last year's jump in the national debt -
is booming.
But now the private sector part of that equation is shifting into low
gear. Cars in particular:
Economy
Will Miss That New-Car Smell
(Wall Street Journal) - The annual pace of light-vehicle sales fell to a
seasonally adjusted 17.2 million in the first quarter from 18 million. That
the decline has come despite generous incentives from car companies and
still-low gasoline prices suggests that sales are past their peak.
The upshot is that the deferred purchases that helped bolster business
coming out of the recession have been made, and it will be up to replacement
demand and a slowly growing population of registered drivers to fuel auto
sales. If car makers are lucky, sales might stay on their recent level. If
they aren't—and the recent drop in used-car prices raises that prospect—the
trend could be lower. In either case, autos might count as a negative for
consumer spending and the industry, a big driver of economic growth, could be
an outright drag on the economy for the first time since 2009.
GM
Joins Ford Worrying About Declining Used-Car Prices
(Bloomberg) - General Motors Co. said a glut of used cars will return to
market after their leases expire and drag on its finance unit this year,
following similar warnings by peer Ford Motor Co. and lenders such as Ally
Financial Inc.
The prices of used cars in GM Financial's leasing portfolio will decline
about 7 percent this year, GM Chief Financial Officer Chuck Stevens said on a
conference call with analysts Thursday. The value of used GM vehicles have
depreciated faster than expected in the first quarter, particularly with
crossovers, and prices will fall as much as 3 percent next year.
Ford touched off concerns about declining used car prices late last year,
when the automaker cut its lending unit's profit forecast by $300 million.
The National Automobile Dealers Association's used vehicle price index
plunged in February by the most since November 2008, spurring concerns about
the fallout for automakers, lenders including Ally Financial and car-rental
companies such as Hertz Global Holdings Inc.
Housing may be about to go the same way. Mortgage rates are rising, which
means the real cost of owning a home — already up dramatically in the past
few years — is about to jump again.
When rising prices meet soaring supply, carnage frequently ensues. Miami,
as usual, is a case in point:
Miami
Condo Bust Much Worse than Industry Numbers Show
(Wolf Street) - Condo sales in Miami-Dade County have plunged. Condos on
the market have surged. Supply has hit 14 months. Developers are sitting on
completed units they can't sell, and months' supply in their projects has
reached several years.
Department stores, meanwhile, have begun their long-awaited die-off. From
yesterday's Washington Post:
The
troubles at the American mall are coming to a boil
A fresh round of distress signals sounded in the retail industry this
week, as another big-name chain announced hundreds of new store closings and
still others moved aggressively to recalibrate their businesses for the
online shopping stampede.
Payless ShoeSource filed for Chapter 11 bankruptcy and outlined plans to
immediately close nearly 400 of its 4,400 stores globally. Ralph Lauren is
shuttering its flagship Polo store, a foot-traffic magnet on tony Fifth
Avenue in Manhattan, the latest step in a massive cost-cutting effort.
Big-box office supplies stalwart Staples is reportedly considering putting
itself up for sale.
The shakeout among retailers has been building for years and is now
arriving in full force.
The retrenchment comes as shoppers move online and begin to embrace
smaller, niche merchants. As a result, many major chains find themselves victims
of a problem of their own making, having elbowed their way into so many
locations that the United States has more retail square footage per capita
than any other nation. To use the industry vernacular, they are simply
"overstored."
Many have begun cutting back, sending ripples through the economy. The
wave of store closures by Macy's and Sears alone will empty 28 million square
feet of retail real estate, according to an analysis by research firm CoStar.
Often those vacancies are slow to fill, leaving shopping centers less
hospitable to the chains that remain, feeding even more departures and job
losses.
The malaise has spread even as the economy overall grows stronger and the
stock market marches higher. Just this week, Urban Outfitters reported that
in the current quarter to-date, its comparable sales are "mid
single-digit negative." The women's clothing chain Bebe said in a
regulatory filing Wednesday that it is closing 21 locations. Last week, yoga
clothier Lululemon chief executive Laurent Potdevin acknowledged that the
chain had seen "a slow start to 2017."
These are some serious headwinds, and it's not clear what offsets them.
Could be that the only source of future growth is the government, which means
the Fed will soon have to reverse course, cutting interest rates and buying
up even more of what used to be known as the free market.
