Another Surge in Car Sales

2013 Chevrolet Volt
2013 Chevrolet Volt

Cars sales should surge again in February, as the annual rate reaches closer to the record levels of 2005 and 2006. Nothing - not even higher gas prices - can block the relentless demand for new cars. That is, of course, if the economy cooperates, which it may not.

According to research firm Edmunds, car sales this month should be so good that they can be used to estimate total 2013 U.S. sales at 15.5 million. The technical name for the calculation is the Seasonally Adjusted Annual Rate (SAAR).

The firm released this comment when it announced its forecast:

"Car sales are persevering despite economic factors on people's minds like rising gas prices and the implementation of the payroll tax," says Senior Analyst Jessica Caldwell. "Pent-up demand and widespread access to credit are keeping up car sales momentum."

However, gas prices and the availability of credit cannot be taken in a vacuum. If many economists are right, huge federal budget cuts that would start March 1 will erode business activity, consumer confidence and improvements in unemployment. Additionally, real wages in the United States have dropped recently and show no sign of rebounding.

The effects of gas prices remain variable. Some households have adults who face long commutes to get to work. As gas prices move back toward $4 for a gallon of regular, based on a nationwide average, the erosion of household discretionary spending dips week by week. Many forecasts show gas prices could move steadily higher. At some juncture, gas prices do matter.

While an increase in home prices makes some people believe that their largest assets have become valuable again, the housing recovery can only remain strong if the wider economy cooperates. That may not happen at all. The overall recovery is still "fragile," to use a popular term, even if housing has gotten better. Major retailers say it has been so fragile that recent payroll tax increases already have affected them. People who worry about shopping in stores may well worry about more expensive items, which include new cars.

Car sales usually have been a good proxy for the overall U.S. economy. Right now, they signal good times. That may not last more than another month or two.

Filed under: 24/7 Wall St. Wire, Autos

Originally published