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October 8, 2009

Auto Sales & Unemployment

Before you judge my political views, let me first say that I think ALL politicians are frauds and that few of them represent anyone except the special interest groups that support their campaigns.

I received the following message from Congressman Tom Price on Monday (10/5/09): "Last week we received more bad news in the job market. 263,000 jobs were lost during the month of September and the unemployment rate is now at 9.8%. The verdict is in and the economic policies of President Obama and Democrats in Congress have become a massive failure."

I understand Congressman Price's position, but it bothers me that he has taken the lead of talk show hosts to use scare tactics to spread his message. I would, for once, like to hear his opinion. His entire rant can be found here.

In addition, my friend Dan Murray posted a link to a Wall Street Journal article on his Facebook page that essentially said the "Cash For Clunkers" program failed.

I wanted to see if I could draw any sort of correlation, or at least possibly provide the specific details.

Here is my visualization:

First, to Congressman Price's accusations. The rise in unemployment started around January 2007. Obviously President Obama was not yet in office. So what happened that could have sparked the sudden rise? This is precisely when President Bush announced the surge in troops for the Iraq War during his State of the Union address. I can't say that was the exact cause, but I do find the timing neatly coincidental.

Now, onto the WSJ's claims that Cash for Clunkers failed to help the economy. Yes, there was a huge decline in new car sales in September, but this is not unprecedented if you look at historical sales.

Back in October 2001, the "0% interest" programs were introduced by the Big 3. This program was a HUGE boost to sales (35% over prior month), but it resulted in a decline of 18% in November and 25% over the following two months.

The Big 3 introduced the "Employee Pricing" programs in July 2005. This program was another HUGE "success" (sales increased 15% over prior month and 22% over May), but it resulted in a decline of 18% in August, 20% through September, and 28% through October.

The Cash For Clunkers program (August 2009), resulted in a 4.4M units increase in sales over June or 45%. That increase has never been approached in the last 10 years. The results, however, was a decreased in sales in September of 4.9M units or 35%. If this program follows the behavior of the previous two, we should see a decrease of an additional ~7% over the next 1-2 months at which time sales should stabilize.

My take: the auto industry waited too long to offer another teaser program.

Now, I want to take a leap to connect the two (auto sales and unemployment). A significant number of people were employed by the Big 3, so when auto sales take a nose dive, you would have to expect that they would begin laying off workers, which would ultimately have a direct impact on the national unemployment rate.

Back to President Bush. I cannot directly correlate his Address to these figures, but the timing sure is suspect.

* All data courtesy of FRED.


  1. Here's what probably happened. The GM and Chrysler guys went to there August meeting with the new Government bosses whining about needing a subsidy to replace the normal fall "spiffs."

    The problems leading up to this mess started when Nixon took the USA off the gold standard and we made money supply a quasi-political process. Look at what happened to inflation starting about 1971 compared to the previous 70 years. I'll bet you notice a little uptick in those numbers.

  2. Oh....nice use of the dual-axis time-series chart.

  3. Good stuff Dan! Can you tell I have a great disdain for politicians? Anyone for term limits?