A record 26.4% rise in new automobile sales, aided by zero-percent financing and other incentives, boosted retail sales by 7.1% in October, the Commerce Department said today. However, Jerry Leonard, an analyst with Martin Labbe Associates, warns that the October boom may in turn haunt the automotive industry and its carriers.
“I don’t know when it will happen, but history suggests demand for new autos will be down,” Leonard said. “As the manufacturers bring in more consumers to buy cars, the future demand will go down.”
Leonard said zero-percent financing proved to be a quick fix for the automotive industry, but it could lead to a glut of new automobiles sitting in dealer’s lots in 2002, even if prices are lowered.
The October auto sales rise follows a 4.5% decline in September. Excluding autos, retail sales rose 1.0% in October.
Consumers, whose spending accounts for two-thirds of all economic activity, have been a main force keeping the economy out of recession. But economic fallout from the September 11 terror attacks have probably made a recession this year unavoidable, economists say.
The economy shrank at a 0.4% rate in the third quarter and many economists are predicting an even bigger drop in the current quarter, thus meeting a common definition of a recession: two consecutive quarters of declining economic output.