A new forecast on the sales of sales of light vehicles predicts new car sales will continue to boom during the next couple of years, according to the study from the University of Michigan.
Vehicles will stabilize at their September-October pace, averaging 17.4 million sold this year and climb to 18 million in 2016 and 18.1 million units in 2017, said Matthew Hall of the Research Seminar in Quantitative Economics in the U-M Department of Economics.
“There have been only 10 months in which the recorded pace of light vehicle sales exceeded 18 million units. Eight of the 10 months occurred 10 or more years ago, and the other two were September and October 2015,” Hall said.
“We project the strong pace of vehicle sales to continue throughout the forecast. In fact, we believe this year will match 2000, the strongest year on record, and the next two years will be even better,” he added.
Car sales have been given a boost by job creation and a surge in the formation of new households. The number of new households is expected to reach roughly 1.5 million, which is the highest level since the recession of 2008 and 2009, noted Wendy Edelberg, assistant director of macroeconomic analysis for the Congressional Budget Office.
While the U-M economists predict many positives for the U.S. economy in 2016 and 2017—from vehicle and home sales to employment and GDP growth—all is not rosy, they say.
“The turmoil in financial markets earlier this year served as a reminder that the United States is not insulated from economic events in the rest of the world,” RSQE’s Aditi Thapar said.
“Over the past year, several of our trading partners experienced weakness in their economies, prices for a wide range of globally traded commodities declined sharply and the dollar appreciated substantially—which, along with the ongoing collapse in oil prices, reduced inflation and adversely affected net exports.”
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Nevertheless, the RSQE forecast expects unemployment rate will likely fall below 5% next year—the first time since 2007—as the U.S. economy grows at its best rate in a decade, the U-M economists said.
The national economy will add 4.7 million jobs over the next two years—2.4 million jobs in 2016 and another 2.3 million during 2017—after gaining 2.9 million jobs this year, according to an annual RSQE forecast.
Unemployment will continue to fall from last year’s rate of 6.2% to 5.3% this year, 4.9% next year and 4.6% the year after, which should help part-time workers who want to find full-time jobs.
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Overall economic output growth as measured by real Gross Domestic Product will rise from 2.4% last year and this year to 2.6% in 2016 and 2.9% in 2017.
“That ordinary performance during 2015, however, masks a stronger domestic economy slowed by sluggish growth in its trading partners,” RSQE’s Dan Manaenkov said. “Labor market conditions are improving, wage growth is picking up again, vehicle sales are booming and the housing market is continuing its recovery.”
In addition to GDP and employment growth over the next two years, the forecast calls for solid growth in housing starts and light vehicle sales.
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Construction of new homes, both single-family and multi-unit housing, will continue to rise from a million units last year to 1.13 million units this year, 1.31 million next year and 1.47 million the year after. Sales of existing single-family homes are expected to increase from 4.3 million last year to 4.7 million this year, 4.9 million in 2016 and 5 million in 2017.