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Autos Home A-Loan

4th_Oct-1

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What's going on?

Auto sales in the US fell by 7% last month – following a trend of Americans buying less stuff (including fewer homes) as borrowing money becomes more expensive.

What does this mean?

Staple wheels-providers Toyota, Nissan, and Ford all saw their US sales decline by more than 10% in September. Fiat Chrysler was the only major carmaker to gain, as sales of its Jeeps jumped. Prior to this January, auto sales hadn’t fallen in eight years. Higher interest rates are partly to blame – the US Federal Reserve (a.k.a. the Fed) hiked rates last week for the third time this year (with another raise expected before year-end). That means it costs more to borrow money – to buy things like cars and houses – so people buy less.



Sales of US houses have fallen for eight months in a row as mortgage rates climb to the highest since 2011 (tweet this). Even notoriously in-demand Manhattan (where people pay through the nose for not much at all) is feeling the pinch, with home sales falling for four straight quarters.

Why should I care?

For markets: A ripple effect.

Car and home sales are key economic bellwethers (i.e. they indicate overall economic trends) – investors watch them to gauge the health of the world’s largest economy, and they’re looking a little worse for wear. The impact of higher rates could feed through into company profits across the board and, with stocks on a tear, expectations are sky-high. Investors might end up disappointed.



The bigger picture: This is how central banks are meant to work.

The Fed is doing the job it’s supposed to do. Growth forever is unsustainable (it leads to crashes) and, before things get out of control, the Fed’s put a dampener on the economy. By raising rates, money is taken out of the economy – and everything sits down and calms down.

Originally posted as part of the Finimize daily email.

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