At the beginning of the year, we explained what’s driving the economy recovery: It’s not that there’s some burst of optimism or anything like that, it’s that the economy got so beaten down, that there’s plenty of pent up demand for cars, housing, and other basic needs that have lifted the economy merely by reverting to the mean.
One of our favourite charts around is car sales divided by the total population, which shows how abnormally low the current rate of sales is — even though sales have been picking up nicely.
[credit provider=”FRED” url=”https://research.stlouisfed.org/fred2/graph/?graph_id=62217&category_id=0″]
The 10.8-year age of the average vehicle on the road is the highest its ever been, and though car quality has improved over the years creates another natural impetus to buy more cars.
Bottom line as we stated earlier: A major driver of the economy is just the current economy reaching capacity, and the need to buy/build more. Vehicle sales is a microcosm of a broader trend.