Rising Gasoline Prices – A Minor Setback for Consumer Spending: Scotiabank Economics

In his last Scotiabank Global Auto Report before his retirement on June 1, 2018, Senior Economist Carlos Gomes shares his auto industry insights.

Despite rising gasoline prices, global auto sales have gained significant momentum in April. Volume growth accelerated in most regions and sales rose 6.5% year-over-year, up from a 2.3% year-over-year increase during the first quarter.

“US gasoline prices are approaching a level similar to prices that prevailed in the final months of 2007, as the previous global economic expansion was coming to an end,” said Carlos Gomes, Senior Economist and Auto Industry Specialist, Scotiabank. “However, the recent increase is likely to have limited impact on consumer spending in the United States and around the world, as household incomes are accelerating in most regions and balance sheets continue to improve.”

A 20% increase in gasoline prices this year absorbs only about 8% of the projected increase in US incomes in 2018.

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Canada was a notable exception to the improving global sales trend in April, with purchases edging down year-over-year for the second consecutive month, and falling below an annualized two million units for the first time since December. The decrease was broadly-based, with volumes declining below a year earlier in most provinces except for Manitoba, which had sales rise 19% above a year earlier in April, bolstered by sharp gains in business purchases.

Sales increased in all other major markets last month. US purchases remained above an annualized 17 million units in April for the eighth consecutive month, supported by a 9% year-over-year jump in commercial volumes due to an improving economic outlook and strengthening business confidence. South America posted the largest increase, with sales surging 27% year-over-year, but Asia and Eastern Europe also reported 11% year-over-year gains.

In China, the world’s largest vehicle market, auto sales went up to 12.6% year-over-year last month, the largest advance since February 2017. This is being driven by strengthening household wealth, near-record consumer confidence and stronger-than-expected industrial activity and housing prices.

Other highlights:

Half of the countries in Western Europe reported double-digit year-over-year sales gains in April – the best performance of the past year.
The impact of rising gasoline prices will be proportionately larger on Canadian households compared to the US, as prices are higher and gasoline absorbs a higher share of household income.

Read the full Scotiabank Global Auto Report online at:

http://www.gbm.scotiabank.com/scpt/gbm/scotiaeconomics63/GAR_2018-05-31.pdf

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