MacroScope

Economists love motor analogies, and for good reason: they are very useful in illustrating the ebb and flow of economies. In coming months, maybe even years, the help from the auto sector could become a lot more literal, argues Paul Dales, senior U.S. economist at Capital Economics in London. In particular, he expects rising sales following years of depressed consumer spending on vehicles in the wake of the Great Recession could add as much as 0.25 percentage point to U.S. gross domestic product growth per year over the next four years. Here’s why:

The rise in new vehicles sales in September, to 14.9 million from 14.5 million in August, was significant as the number of new vehicles being purchased is now higher than the number being scrapped. This comes after four years in which the total number of vehicles in operation has been declining.

That fall was because when the recession hit and credit seized up, both households and businesses had little choice but to run their existing vehicles for longer. It is possible that 10 million fewer new vehicles have been sold than would have been the case if there was no recession.

At some point the maintenance costs of driving an aging vehicle will outweigh the purchase costs of a new one. And given that new car prices have been stable and that auto loan financing rates have dropped to record lows, conditions appear to be in place for this pent-up demand to be released.

Hurricane Sandy, downgraded to a post-tropical storm but still enormously devastating to parts of the U.S. East Coast, already had a negative impact on the auto sector in October, bringing the annualized sales total back down to 14.3 million.

Food and electricity bills are high. The cost of filling up at the petrol station isn't coming down much either. The U.S. economy is in trouble and suddenly the job isn't as secure as it seemed. Maybe that designer handbag and new car aren't such good ideas after all.

That's the kind of decision millions of middle class consumers in developing countries are facing these days. That's bad news for purveyors of everything from jeans to iphones  who have enjoyed double-digit profits thanks to booming sales in emerging markets.

Brazil is the best example of how emerging market consumers are tightening their belts. Thanks to their spending splurge earlier this decade, Brazilian consumers on average see a quarter of their income disappear these days on debt repayments. People's credit card bills can carry interest rates of up to 45 percent. The central bank is so worried about the growth outlook it stunned markets with a cut in interest rates this week even though inflation is running well above target

As part of a Reuters series on long-term unemployment, reporters spoke with those who are struggling to find work. For other profiles click here and here.

ALVIN GAINS, 56, former Chrysler worker

For the second time in 30 years, Alvin Gains is leaving his home state of Michigan and moving to Texas to find work.

“There are college kids who can’t find a job, so there’s no chance for someone my age,” said Gains, 56. “But people are hiring in Houston, so it’s time to go.”

People have suddenly started buying cars. At least that is the implication from recent data that has surprised markets and delighted economists scrutinising the garden for the oft-cited green shoots of recovery.

First it was the United States. Yes, on a yearly basis sales plunged, but on a month-by-month comparison with February, things look a lot better. Eg, General Motors sales plunged 45 percent in March from a year earlier, but it said they were up 23 percent over February. It reckoned that increase was U.S. industry-wide, too.

Then came Germany, Europe’s biggest automaker. Car sales jumped 40 percent in March.

The world’s second largest economy, Japan, and Europe’s largest, Germany, all of a sudden have a lot in common. 

Their most striking resemblance in recent weeks is the breathtaking speed of economic decline, with output ransacked by a collapse in world demand for high-quality manufactured goods and an overvalued currency.

The fundamental problem is simple and doesn’t take an economist’s model to explain. At this stage of the financial crisis, who wants to replace a fully-functional Audi they bought a few years ago? What’s wrong with the 2007-vintage Sony PlayStation connected to the two-year-old Bravia or Grundig flat-screen TV? And who in their right mind would want to import the stuff in bulk when the euro and the yen are so expensive?