A STRONG CONSUMER MEANS STRONG AUTO SALES
What with all the talk about technology, let's not forget that the auto industry in this country is still very important to our economic health. The latest report from the Chicago Federal Reserve is good news for all of us. The report states that auto industry sales, which hit record levels last year and will again this year, due in large part to our strong economy, are likely to stay strong in the future, although competition is intense.
The latest Chicago Federal Reserve letter explores conditions for the auto industry and sums up the outlook from the Fed's early summer Auto Outlook Symposium, where participants predicted two more years of strong auto sales, despite certain challenges.
The Chicago Fed's Seventh Annual Auto Outlook Symposium, held in early June, brought together participants from the industry, economists and representatives from Wall Street. Although industry sales continue at record levels, everyone agrees that the marketplace is getting increasingly competitive. The group noted that the Fed's effort to cool the economy, and the environment of rising interest rates, has affected vehicle affordability. Despite that, economists predict that U.S. auto sales will stay strong into next year, with total vehicle sales predicted to set a record of over 17 million units.
Increasingly, as our auto industry turns global, the rest of the world gains importance-such markets as China, Russia and India have literally billions of new customers waiting for the auto industry, but that is down the road, over the next decade and beyond.
In the meantime, back home, it is the general economy here that is the single most important issue to the auto industry right now. As of now, the group in the Symposium predicted overall growth, as measured by the Gross Domestic Product, at 4.7% this year, then slowing to 3.3% next year.
As stated earlier, with all the talk about the new economy, the nation's auto industry remains a huge employer, and has huge economic impact on our overall economic health.
Speaking of non-technology industries that still have enormous impact on our economy, the real estate market certainly has been impacted of late by the Federal Reserve's one-year push on interest rates of 1 ¾%. The real estate industry's figures still are good, but that is because they were coming from record highs last year. The slowing is indisputable, and is mostly being blamed on the interest rate hikes accumulated this year. In the meantime, mortgage experts now guess that fixed 30-year mortgage rates are likely to continue, hovering around the 8% area for the rest of the year. That goes along, of course, with the assumption that the Fed is done raising interest rates, at least for the rest of the year. Just a week ago, the National Association of Realtors reported a 9.8% drop in existing home sales for the month of July. Here in the Midwest, homes were reselling at a rate down 8% from the month before. That pace was also 12% below a year ago. The median price for a home in the Midwest now is $128,700, up 4.4% from a year ago. By the way, homes are priciest in the Western part of our country, averaging $183,000, up 6.3% from last year.
Meanwhile, back in the world of high technology, Cahners, a research firm, says American businesses are investing as much as 20% of their technology budgets on Internet services, personnel and solutions. They say that spending is up 35% this year over last year, and they put the number at a hefty 89 billion dollars. They note that 70% of the American workforce currently has Web access at work, up from 63% last year. Over the next couple of years, they expect that number to grow to 85%.
Speaking of the Internet, Andersen consulting says our country remains the number one digital economy, but Europe has been closing the gap. In 1998 we had four times as many workers involved in the 'Net as six European countries studied. By 2002 they say the ratio will be down to two-to-one. Last year the European 'Net economy generated $132 billion in revenue, according to Andersen, compared with our $507 billion. By 2002 European countries will generate an expected $597 billion, about half of the one and a quarter trillion in sales predicted for the U.S.A.
(Tom Butenhoff is a First Vice President with J. E.
Liss & Company in Milwaukee. The views are his and not necessarily
those of Liss Financial Services or the Job Connection/Hiring
Network.)