The GDP grew 2.2 percent last quarter. Allow me to repeat that with emphasis: The GDP GREW 2.2 percent last quarter. You see, growing means the economy is recovering. Yes, 2.2 percent is weaker than what we need and below expectations, but better than contracting 0.2 percent, which is what the German economy did during the same period.
And what drove this growth? Auto sales. Take out auto sales and the economy grew by about half that amount. Now the question is. Why? Why were auto sales so high?
Some say its due to high gas prices, that consumers are switching out of gas-guzzlers. But gas prices were high the last time auto sales topped 14 million, so how many people really need to downsize? Didn't they downsize then? The story in 2008 was nobody wanted SUVs. What are they downsizing from? And if not then, what about during Cash for Clunkers? Fuel economy is improving because fuel economy is improving. The manufacturers have placed more emphasis in this area. I believe people are buying cars for fuel economy as much as I believe they are buying them because "they need to."
So why are auto sales higher today? For the same reason they collapsed in 2008 - credit. Auto sales slowed over Memorial Day weekend of 2008. A week or so later, I was attending the National Automotive Finance Association and witnessed the uncomfortbale site of Dan Leonard taking over as the group's president and announceing his company, Triad Financial, was folding in the same speech. That, more than gas prices, caused the industry's downfall.
It amazes me that nobody gets credit. It's what drives our economy today, yet it seems ignored by everybody from journalists to economists.