While today's disappointing Q3 GDP print was generally weak across the board, with spending on goods especially concerning, with the there was one breathtaking statistic: the nearly record plunge in spending on autos. As the chart below shows, the contribution of personal consumption of motor vehicles and parts to the overall GDP growth number was a whopping -2.4%, the second-worst print on record after Q2 1980.
We highlight the last time the US economy saw such a crash in auto spending because back then Volcker was fighting (near) hyperinflation and the Fed Funds rate was 17% (just shy of its all time high 20% in mid-1980).
Now it is 0%. Which means that the Biden administration better pray that this collapse in spending is all chip shortage/supply-shock driven because if it is due to demand weakness, with QE already raging with trillions in stimmies sloshing in the system and with rates unable to go any lower, then the US economy is truly on the verge of a historic collapse.
To be sure, it wasn't just autos where spending imploded: it was all goods that showed the weakness while spending on services provided a 3.4% bump to growth last quarter (the second-best of the past four quarters). At the same time spending on durable goods wiped off 2.7% of growth last quarter.
Providing some cover for the dismal print is that motor vehicle output indeed dropped 8.3% last quarter, the first quarterly drop since the last three months of 2020; this was largely due to the infamous chip shortage that has crippled all auto suppliers (except, remarkably, that chip hog Tesla). On that note, Ford warned yesterday that chip shortages could last into not just next year, but 2023 (just in case auto suppliers need to baffle with BS when sales stink and they need to keep blaming supply instead of lack of demand).
And while conventional wisdom continues to push the supply-side weakness as the explanation for the plunge in spending, the following comment from Paul Ashworth at Capital Economics, who echos what we said back in August, is certainly troubling: “With enhanced unemployment benefits being withdrawn through the quarter, real personal disposable income contracted by 5.6% annualised, with the saving rate dropping to 8.9%, from 10.5%. That means the saving rate has now returned to its pre-pandemic level, leaving a lot less scope for households to boost their spending, although the current rate doesn’t allow for any savings accumulated during lockdowns.”
So yes, supply chains are broken, and in many cases will take years to get fixed. But worse, at the same time we are entering a phase where consumption is falling off a cliff for two reasons: the end of extended unemployment stimmies and the end of excess savings. We discussed this in detail in "The Global Supply Shock Is About To Enter A Negative Feedback Loop With Weakening Demand" and if indeed the US economy is facing a consumption shock (to go with the supply shock) then it's time to quietly get out of Dodge.