Home, car sales getting back their groove

Notes of optimism at Detroit auto show and stronger home sales and housing starts suggest recovery is gaining strength. But a return to normal will have to wait until 2014.

Cars and homes. If those two sectors of the US economy can get back to normal, there's hope that the United States can shake off the sluggishness of the current recovery and begin to grow at a faster pace.

There are positive signs in both sectors, although a full recovery probably will have to wait until next year. Home and car sales lost so much ground during the Great Recession that it will take time to get back to normal.

The momentum is certainly building.

As the world’s auto industry descends upon Detroit this week for the North American International Auto Show, there are notes of optimism that the industry is poised to complete its comeback from the dark days of the Great Recession.

 In 2012, the auto industry had its best year since 2007. Automakers sold 14.4 million cars and light trucks, a 13 percent rise from 2011. And the National Automobile Dealers Association is expecting another 7 percent increase this year.

That would bring the industry within striking distance of the 16 million-plus annual sales the industry enjoyed from 2000 through 2007.

“People are a little more optimistic,” says Ed Loh, editor in chief of Motor Trend Magazine. The industry is bringing out models that have been thoroughly and thoughtfully reworked, a trend that will be evident at this year’s Detroit auto show. “We've driven all the 2013s already and they're all extremely competitive.”

So competitive, in fact, that in the major categories, it’s tough to pick a winning model, he adds.

The housing sector has taken longer to begin its recovery, but sales and sales prices now appear to be sustainably on the rise. In December, the annual pace of housing starts hit about 880,000 units, forecasts Michael Gapen, senior US economist for Barclays Research in New York. At the end of 2013, that rate should hit 1.1 million units.

That’s a whopping 25 percent increase in a year, which would provide a huge boost to the economy in a normal year. “If anything, the recovery in housing this year has been stronger than expected,” Mr. Gapen adds. But the current number of starts it only about 60 percent of the normal rate, “so even if you get a large pickup, you have a ways to go before the housing market normalizes.”

By 2014, he estimates, housing starts will be close to their normal rate, much like auto sales.

There’s still plenty that could go wrong with this scenario, especially if Congress can’t come up with a plan for resolving the federal government’s debt and deficit problems.

But housing starts are at such a low rate that, in a strange way, they’re likely to be more resilient to a general slowdown in the economy, Gapen says. “Slow growth doesn't have to be fragile growth.”