It’s always risky to put economic commentary into print, as the one is more fleeting than the other.

A “reasoned analysis” can quickly appear to be a “ridiculous prediction” simply because of a quick shift in real world facts. The risk grows in times of financial market volatility, trade tensions, heightened geopolitical risks, or significant political uncertainty.

Today, we have all four. As such, it is probably best to focus on broad trends that are unlikely to change.

Wages will rise — finally 

The performance of used vehicle loan portfolios (and, thus, used-car sales) is dependent on consistent and predictable future income estimates for the borrowers. The possibility of income growth is simply an added bonus.

Currently, the number of job openings per job seeker is at historic highs, and the number of involuntary layoffs is at all-time lows. That, plus an overall unemployment rate of 4.1 percent, puts workers in the driver’s seat.

Nevertheless, wage growth remains lackluster,but it is starting to change. Annual bonuses to rank-and-file workers, signing bonuses to new hires, and basic salary increases beyond the minimum wage are becoming commonplace.

Those are trends that should bring a smile to every used-car dealer — and they are trends that typically don’t turn on a dime. Th is is clearly good news.

Wealth: aggregate numbers, good; specifics, not so much 

Household net worth reached a record $99 trillion in the fourth quarter of last year, according to the Federal Reserve. And the increase was caused by all the right reasons — higher home volumes, rising equity prices, and only modest (and supportable) increases in mortgage and installment debt.

Naturally, asset-owners (homeowners and stock market participants) fared better than renters, lessors and non-savers. And, some underlying trends were not encouraging. We know that wealth distribution has become increasingly skewed over the last two decades, and generational shifts point to further troubling signs.

Millennials have a significantly lower homeownership rate and (income-, age-, price- and model-adjusted) they are more likely to lease vehicles as opposed to buying.

As a group, they are consumption, not investment, focused. Think subscription services for razors, phones, home meals — and, now, cars.

To be sure, in earlier generations there was an over-investment in real estate, but, for many middle-income people, homeownership represented a low-risk, high-leveraged, long-duration, forced savings plan.

In other words, a perfect backup retirement program. Survey after survey show that millennials don’t believe Social Security will be there for them. But are they taking contingency actions? No.

Deficits and debt 

I’ll spare you a reading of the latest CBO budgets projections — the salient fact is that trillion-dollar annual deficits will soon return. (To inflation-adjust the late Senator Dirksen said, “A couple of trillion dollars here and a couple trillion dollars there, and pretty soon you’re talking real money.”)

U.S. government debt is expected to reach 100 percent of GDP in a decade. The trends are as ugly as they are unsustainable. Don’t blame the tax cut — CBO projects that total revenue will rise quite nicely.

It’s simply that spending will rise faster. And don’t blame the spending bill. Higher defense outlays were overdue, and although the rise in other discretionary spending was a tad excessive, everyone knows the real issue is Social Security, Medicare and Medicaid.

Everyone also knows that nothing will bedone. When Speaker Ryan suggested that entitlement reform might be the next logical step following passage of the tax bill, the idea was turned down faster than a 550 FICO at a Lamborghini dealership.

But do deficits and debt really matter to theauto industry? In the near term: “probably not.”

The issues have persisted for decades and can probably be pushed down the road another decade or more. But, by definition, the unsustainable will end — and it won’t be pretty. Additionally, closer to hand, I suspect some state and local governments will need to initiate some revenue grabs.

Watch your wallets.

Overall, however, dealers should take full advantage of today’s favorable labor market and credit conditions. But, unlike the federal government,they should also be balancing consumption and investment for the long term.
 

Tom Webb is the former chief economist for Cox Automotive, Manheim, and NADA. He can be reached at tomwebb1950@gmail.com and on Twitter:@tomwebb1950