Business Update with Mark Lacter

Economy, cars, and trucks

KPCC's business analyst Mark Lacter talks about how the economy is growing slowly and why people are buying cars and trucks.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, there’s so much talk about another recession and yet people still seem to be spending - why?

Mark Lacter: Because that's what it seems to be Steve - talk. Here's a news flash - at this point, the economy is not contracting. It is growing. Now granted, it hasn't been growing very much - only 1.3 percent in the second quarter and possibly less than that in the third quarter that ended last week (we'll get the initial estimates later in the month).

Julian: That’s not nearly enough, is it?

Lacter: No. You would need growth closer to 4 to 5 percent, which is not even on the horizon. All that said, somebody is spending money, as we saw with the September cars sales (truck sales) that were announced yesterday by the automakers (GM up 20 percent, Chrysler up 27 percent, Ford up a relatively soft 9 percent). Actually, if you look at consumer spending in California over the past couple of years, much of the improvement is the result of car sales, especially in recent months.

Julian: Why are people buying cars and trucks?

Lacter: Well, there are lots of good deals - plus, there's pent-up demand. It’s a very different climate from 2009, when dealerships were in such a black hole that they had to lay people off and in some cases shut down operations. Keep in mind that U.S. car sales went from sixteen-and-a-half million in 2006 to a little over 10 million in 2009, a 40 percent drop. This year, sales will run about twelve-and-a-half million, which is a bit better, but still way below what it should be. And that's the point about another recession: You can't go down much further when you're already down. Car sales are not going to drop another 40 percent from where they are now – it’s just not going to happen. If anything, sales will probably keep inching up, if for no other reason than the fact that cars eventually do wear out.

Julian: So what does all this point to?

Lacter: A continued slog - not an outright economic disaster, but not the kind of growth that we can actually feel. For that to happen, consumer debt levels will have to drop substantially - and that's a process that'll probably go on for several more years, I'm afraid.

Julian: Given all the problems with mortgages, why did the state back out of bank settlements?

Lacter: Because Kamala Harris, the California Attorney General, didn't believe that the banks were offering a good enough deal. This was a tough decision - you might recall that California was working with other states and the major banks in coming up with a settlement related to mortgage abuses (news reports indicated that it was worth around $25 billion). That kind of agreement could have provided the banks with more assurance about what their ultimate liability from the mortgage mess. But Harris was worried that the settlement would absolve the banks of other legal claims connected with mortgage lending and foreclosures - claims that could have dragged on for years.

Julian: So there was a dilemma -

Lacter: ... do you accept a settlement that possibly understates the amount of damage that was done for the sake of perhaps encouraging the banks to lend more (something that the Obama administration has been pushing); or do you say no because the settlement, as currently laid out, could still result in more California homeowners losing their homes.

Julian: So Harris was pulled in different directions...

Lacter: She had been under lots of pressure from housing advocacy groups not to cut a deal. What her decision means, first and foremost, is that the settlement is pretty much dead (the banks aren’t about to sign off on a deal that doesn't include California). What it also illustrates is the difficulty - maybe even the impossibility – of creating a one-size-fits-all settlement to all the housing misdeeds. The pity is that it's in everybody's best interest to seek some sort of closure - it's just a matter of how it's done.

Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


blog comments powered by Disqus