Auto haulers have a good reason to expect 2015 will be a good year for them, following a prediction that new car and light truck sales and leases will hit nearly hit the 17 million-level.

The forecast from the National Automobile Dealers Association comes with nearly seven weeks remaining this year, while its original sales forecast of 16.4 million new cars and light trucks for 2014 remains on target with an expected healthy finish in sales in November and December.

“Rising employment and wages, continued low interest rates and lower gasoline prices all signal an increase in new light-vehicle sales in 2015,” said NADA Chief Economist Steven Szakaly. “The economy will continue to build on the solid growth established in 2014, and we also expect the fundamental conditions to improve in the year ahead. Gross domestic product will grow at 3.1% in 2015, with the potential for growth to exceed our forecast.” He expects the GDP to grow at a 2.1% annual rate when final numbers are in.

NADA’s 2015 forecast, in part, is predicated on interest rates remaining low. “The Federal Reserve is expected to raise interest rates in 2015, but the rate rise will be small,” Szakaly said. “The Fed policy rate will move to 1% by October 2015, with further movements in rates expected during the second half of 2016.”

Szakaly also forecast that employment will continue to increase. “Growth is now well above 200,000 jobs per month, and our forecast for employment growth is 242,000 new jobs on average per month in 2015,” he said. “This improvement in the labor market should also benefit wages and incomes. This growth will be moderate, with disposable income rising by 2.5% in 2015,” he said. “Conversely, corporate profits are expected to increase by a healthy rate of 6.7%.”

While talk of wage increases often leads to discussions about the possibility of inflation, Szakaly said there are other factors that will counter any effect from rising wages. For example, “declining demand from emerging markets for commodities and raw materials, especially China, will ease pressure on prices for U.S. companies,” he said. “In addition, a stronger U.S. dollar will further dampen inflationary pressure by maintaining downward momentum on import prices for goods and services.”

Another positive Szakaly said, is oil and gasoline prices are expected to remain weak through 2015 because of the recent market share war that began in Saudi Arabia. NADA’s current forecast is for West Texas Intermediate crude to average $71-$73 per barrel in the first half of 2015, rising to an average of $83 for the second half of 2015. On Wednesday it was around $75, not quite as low as it has been recently, but down from around $100 per barrel earlier in the year

“Lower oil prices, which translate into lower prices at the gas pump for consumers, increases household spending on other goods and services, resulting in higher growth,” Szakaly said. “If oil and gasoline prices remain low through 2015, we could easily see consumers return in even greater numbers to the light-vehicle market during the second half of 2015.”

Szakaly cautioned that there are a few global macroeconomic concerns to the GDP forecast in the United States, such as conditions in China and Europe, but they will not likely derail U.S. economic growth.

In particular, growth in China will slow to an average GDP rate of 6.4% in 2015 and 5.9% in 2016. “This has the potential to harm U.S. exports and hurt profits at companies that are dependent on the market in China,” he said.

In addition, growth in the Eurozone is expected to be weak with GDP likely to grow at only 1.4% in 2015. “This may further dampen demand for U.S. goods and services,” Szakaly said.

In the United States, rising interest rates could cause a slowdown in the housing market. “In particular, existing home sales are expected to remain sensitive to interest rate rises, more so than new vehicles, and could easily dampen activity in new-home construction and reduce sales of light trucks,” he said.

 

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