Friday, October 29, 2010

Vehicle Sales 1976-2010: A look at the future

This post is part of the special series Vehicle Sales 1976-2010.

To tie this all together, I think that we can expect a strong medium-term recovery in domestic automotive demand. I define demand as the demand for replacement vehicles plus the new demand from additional drivers. Using the Census projections we can expect about 268,722,000 individuals aged 16 and over in 2020. Using the previously observed 88% rate of licensed drivers, this would mean 236,475,360 drivers, or an increase of 24,404,194 drivers over the next 10 years. Keeping the number of vehicles per driver constant at ~1.2 this would mean an additional 29,285,033 vehicles in the national fleet. Additional to that would be the demand for new vehicles from retired vehicles. Like I mentioned before, It's hard to precisely estimate the lifespan of a vehicle, but using a hypothetical ten year lifespan and approximately 240 million vehicles (excluding buses and motorcycles) in 2009, that would translate to roughly a full turn around in the fleet, giving us a total domestic demand for automobiles of ~270 million cars and trucks over the next decade. Considering yearly sales averaged ~17.3M vehicles for the six years prior to the recession, this would be quite a strong recovery.

Thursday, October 28, 2010

Vehicle Sales 1976-2010: Sales and Demand

This post is part of the special series Vehicle Sales 1976-2010.

The previous post in the series looked at the market size for vehicles and the size of the country's vehicle fleet. This post will concentrate on how growth in the market combined with other factors affect sales. The number of sales on any given year is driven by two factors, the growth in the total fleet and the number of units purchased as replacements for retired or obsolete units.

As you can see, new-additions to the fleet, while significant, are more volatile as a percentage of sales than replacements for retired units. You can see in the graph that after large dips, retired units seem to bounce back quickly. This suggests that the growth of the fleet is the most sensitive to economic conditions and that a large component of sales is purported replacements for retired units. This makes sense because while touch economic conditions can make one keep a vehicle a little longer, there is limits to how long the life of a vehicle can be extended before a replacement becomes a viable alternative.

Wednesday, October 27, 2010

China Money Supply: September 2010

To see the latest data please see the label Chinese Money Supply
So here's a collection of updated charts with the latest money supply numbers from the People's Bank of China and the National Bureau of Statistics of China. Velocity of Money, YoY growth after the jump.

Please note that, purportedly because of demand for physical currency, there is a significant distortion around the Chinese New Year.
Nominal money supply numbers as reported by the People's Bank of China

Vehicle Sales 1976-2010: Market Size and Demographics

This post is part of the special series Vehicle Sales 1976-2010.

The main factor affecting domestic vehicle sales is the market size. The market for automobiles consists of the personal market and the corporate and public-sector markets. I decided that the best way to measure the market size was to look at the number of licensed drivers and the number of potential drivers. As previously mentioned in the introduction to the series, potential drivers are people age 16 and older. The number of licensed drivers was taken from numbers published by the FHWA. In order for the domestic vehicle fleet to increase we must have an increase in the number of drivers, an increase in automobile ownership, or a combination of the two.

Number of residents over age 16 and % of residents age 15 or under
The chart clearly shows a relatively smooth increase in the number of residents age sixteen or over, which are candidates to be drivers in blue. In red is the percentage of residents age 15 and under. As can be seen, this number has been on a decline since 1962. From this data we can reasonably deduce that we can expect no major demographic reason for an abnormal increase in the potential drivers in the near future. In fact, the number of potential drivers as a percent of the population may be close to reaching it's upper limit.

Drivers as a % of population and vehicles per driver
In this chart we can see that for the last 40 years the number of drivers as percentage of the potential drivers (residents age 16+) has essentially plateaued. This means that the growth in drivers (potential purchasers of motor vehicles) should now generally follow the growth in population. Not every person sixteen or older will be a driver and it looks like the stable number of licensed drivers is 87-88% of the 16+ population. We've also seen the number of registered vehicles rise from .85 vehicles per licensed individual to 1.2 vehicles per licensed individual. Driver-less vehicles may be a possibility in the future but, in the present, a vehicle requires a driver. This means that at any point in time no more than one vehicle per licensed driver should be in use. Taking this into consideration, it seems reasonable to expect a natural ceiling in the number of vehicles per licensed driver. Once that range is reached, the growth in the total number of registered vehicles should be similar to the growth in the number of drivers.

Vehicle Sales 1976-2010: Introduction

This post is part of the special series Vehicle Sales 1976-2010.

Every month Calculated Risk posts the graph of monthly light-vehicle sales. The sales are usually presented as the seasonally adjusted annual rate (SAAR) reported by the BEA. The reason for the adjustment is a strong seasonality in sales which make it difficult to see underlying trends in the short-term. These numbers are suitable for comparison from month to month or even year-over-year, but I found them unsuitable for looking at longer-term trends. To remedy this, I decided to find some different ways of looking at the data to try to get a better look at long term trends in light vehicle sales and hopefully gain some insight as to plausible future outcomes.

To begin, let's consider some of the factors that affect light-vehicle sales:
  • The number of drivers and potential drivers
  • The level of vehicle-ownership
  • The lifespan of a a vehicle
The first factor is not dependent on the current economic cycle, although it is affected by larger demographic trends which may or may not be the result of past economic cycles. Because sixteen is the age at which most teenagers can drive in this country, potential drivers will be defined as residents aged sixteen or older for the purposes of this post. To find the estimated number of residents aged 16 and older, I used the estimates published by the Census Bureau. The number of drivers is the number of licensed drivers reported by the FHWA.

Vehicle-ownership is harder to define. The Federal Highway Administration publishes a series of statistics every two years that includes the number of registered vehicles and the number of licensed drivers. The series is slightly out of date right now, but I believe it should be updated in 2011. The series is limited in various ways; for example, numbers are rounded to the millions and vehicles registered are not broken down into separate categories by use (a motorcycle, a garbage truck, a school bus and my mom's Matrix are all counted as a motor vehicle). Additionally, a vehicle does not necessarily belong to a licensed owner, or even an individual, and not every licensed individual drives. Despite this, I believe that the numbers will be useful in identifying long-term trends, even if they lack precision.

It is hard to determine the current lifespan of an automobile. We can find an approximation by looking at the mean age of automobiles, which gives us an idea of the lifespan of past models, but this isn't very reliable. New models may have longer or shorter life than past models, and things like wage levels affect the potential lifespan of vehicles--if labor is expensive, fixing and maintaining older automobiles becomes less economically attractive. Additionally, economic conditions affect how often people look for new cars.

I will hopefully have time in the future to extract more precise figures from archived reports, but the task is time-consuming and I am skeptical about it's added value (e.g. buses and motorcycles only accounted for 0.41% of the total fleet in 2008). Many the series were split-up recently and many of the numbers are only available from PDF reports from which the data must be re-entered into a spreadsheet to be usable.

Sunday, October 10, 2010

Shut-up, NYT: Mankiw Will Work Less if Taxed More (see also: Laffer curve)

The bright and extremely personable professor of economics at Harvard University, Greg Mankiw, writes in the NYT about how higher taxes mean he'll end up working less.
HERE’S the bottom line: Without any taxes, accepting that editor’s assignment would have yielded my children an extra $10,000. With taxes, it yields only $1,000. In effect, once the entire tax system is taken into account, my family’s marginal tax rate is about 90 percent. Is it any wonder that I turn down most of the money-making opportunities I am offered?
I'd like to personally thank Greg for this eloquent explanation of the Laffer curve. I'm sure it's included in once of his excellent textbooks, although this article was certainly more memorable. My issue is with his last thought, though:
Now you might not care if I supply less of my services to the marketplace — although, because you are reading this article, you are one of my customers. But I bet there are some high-income taxpayers whose services you enjoy.

Maybe you are looking forward to a particular actor’s next movie or a particular novelist’s next book. Perhaps you wish that your favorite singer would have a concert near where you live. Or, someday, you may need treatment from a highly trained surgeon, or your child may need braces from the local orthodontist. Like me, these individuals respond to incentives. (Indeed, some studies report that high-income taxpayers are particularly responsive to taxes.) As they face higher tax rates, their services will be in shorter supply.
Yes, maybe. But Greg is making the assumption that if he doesn't provide his services, someone else wouldn't step-in to fill in the gaps. I'd see this argument being valid when we are close to full employment levels, but the unemployment rate amongst individuals, even if lower than the less educated, is still elevated.
Image source: Calculated Risk
I'm sure that there is plenty of unemployed or underemployed economists who would be happy to take that work Greg doesn't really want, many of which are probably adequately qualified, even if they lack his reputation.  To Greg's possible substitutes that fall under a lesser marginal tax-rate, this same work would yield more savings, meaning they'd be more willing to take on that extra work even if their supply curves are identical. Those who are less financially comfortable and are more willing to sell their labor may be willing to provide the same services for the lesser compensation they might be offered as a result of lacking Greg's name-recognition. So my final comment to Greg is that it may be worth considering that maybe this is not so much about "how much the government should redistribute income" but about how much government should redistribute the opportunity to work. And right now, Greg, there is plenty of us that would be perfectly willing to provide our services for both income, and the opportunity to create a name for ourselves so that one day we too can turn down jobs because, after taxes, they don't pay that much.

As a final nitpick, that 90% estimate is kind-of a worst-case scenario. If Greg's concern is really how much taxes are going to reduce what he finally leaves his children and grandchildren, he should look into estate-planning and all of the opportunities there is to distribute accumulated wealth to heirs over time to reduce the tax-impact, whether it is tax-exempt gift allowances, 529 Plans, or other of the products that are available for these purposes. If you are interested in any of those services, Greg, please feel free to leave a comment and I will make sure to put you in touch with some financial professionals that are both highly-qualified and very much willing to work.

Wednesday, October 6, 2010

China Money Supply: August 2010

To see the latest data please see the label Chinese Money Supply
So here's a collection of updated charts with the latest money supply numbers from the People's Bank of China and the National Bureau of Statistics of China. Velocity of Money, YoY growth and some new GDP ones after the jump.

Please note that, purportedly because of demand for physical currency, there is a significant distortion around the Chinese New Year.
Nominal money supply numbers as reported by the People's Bank of China.
Indexed growth of the money supply compared to growth in GDP (2005=100)