American voters should be required to read the 1954 best seller by Darrell Huff, How to Lie with Statistics. The book illustrates how data used by political leaders, economists, and business leaders represent their viewpoints. At times, a single set of data may tell different, but accurate stories about the subject matter.
This was the case in President Obama’s State of the Union speech on February 12 when he stated “We buy more American cars than we have in five years”. A review of the data tells at least three different stories (you may find additional interpretations of the data).
1. In February 2008, light truck and auto sales were 15,459,000 and interest rates were 7.27%. Total sales for December 2012 were 15,325,000 and January was slightly lower 15,200,000. After plummeting, light truck and auto sales have returned to levels of five years ago.
2. In February 2009, sales had plummeted to 9,021,000 with interest rates of 6.92%. For the period 1980 to 2012, this is the lowest level of sales since December 1981. That month sales were 8,849,000 and interest rates were 17.36%. Since late 2001, there has been heavy stimulation in the market causing sales to be “stolen from the future.” This includes zero percent and other creative financing programs as well as Cash for Clunkers. Given the level of past stimulation, a case can be made that the recent increased growth in auto sales is partly a function of altered consumption patterns and may not be sustainable.
3. Current light truck and auto sales are comparable to December of 1985, when 15,387,000 vehicles were sold and interest rates were 12.39%. Interest rates have dropped steadily since the high in December 1981 to 4.82% at the end of 2012. Given the current level of interest rates and the likelihood they will increase, a case can be made that additional stimulation is unlikely to occur from low interest rates.
The President was correct in his statement (#1 above). While his positive interpretation of the data was appropriate for the occasion, it is possible that the growth of the auto industry will not be the topic of future State of the Union speeches.
Note: monthly light truck and auto sales are seasonally adjusted and annualized.
Copyright 2011 by CBER.