Now nearing its 100th birthday, the United States automobile industry has long been central to the health of the domestic economy. But for several decades, its preeminence has been challenged by the emergence of other industries, such as aerospace and technology. In addition, foreign car makers have vied successfully for the hearts and driveways of America's auto worshippers.
Employment in the industry has risen at only one-third the pace of U.S. private non-farm payrolls overall since World War II, and remains below its peak of 1.05 million jobs in the late 1970s. Reasons abound as to why this industry-which once accounted for 2 percent of all American jobs-is now responsible for only half that amount.
Despite the waning influence of the auto companies, the connection between industry staffing levels and consumer confidence remains quite strong (see chart at right). Like our American Demographics Consumer SentiMeter Index (which gauges confidence by tracking stock prices of economically sensitive companies), industry employment trends can provide some insights into spending patterns.
Don't get me wrong: Even at 1 percent of the total, the auto industry is still a very significant employer. Besides, buying a car represents a substantial outlay, an expense that is often delayed if buyers are apprehensive about the economy. That's why consumer confidence surveys try to ascertain buyers' intentions regarding autos and other deferrable expenditures, such as furniture, major appliances, and vacations.
For years, the Big Three automakers have been trying to "right-size" their operations in order to meet demand and boost profitability. Recent trends have been encouraging: Annual sales of light vehicles have been hovering around 15 million units for the past five years, a far cry from the boom-bust cycle of previous periods, when unit sales could easily swing as much as 15 percent higher or lower than normal.
What's more, U.S. car companies are seeking stronger international ties in response to what appears to be global overcapacity. Chrysler's merger with Daimler-Benz last November is already boosting profitability while reducing each company's exposure to the whims of national economic cycles. And the consolidation trend continues: talks are under way between Sweden's Volvo and the Ford Motor Company (which already owns Jaguar in the United Kingdom) regarding a potential link-up.
After struggling with a whirlwind of destabilizing influences last fall, the economy-courtesy of the Federal Reserve's interest rate cuts-is back on firmer footing, as indicated by rebounding stock prices and consumer confidence. Should economic deceleration recur, the Fed has plenty of leeway to lower rates even further, given the modest rate of inflation.
Meanwhile, auto affordability is still being helped by low interest rates and fuel prices. Furthermore, new financing alternatives serve to reduce initial costs and monthly payments. Increasingly, buyers are being drawn to larger and more expensive models, which translates into bigger corporate profits. Barring an unforeseen hit to consumer attitudes, 1999 looks to be another good year for the auto industry and, by extension, the economy overall.