With the repeated, unusually punishing blasts of winter weather whipping much of the country, the economy has been caught in a white-out. For those of you in warmer climates, that's when drivers are unable to see anything but blinding snow.
Remember Groundhog Day, when Punxsutawney Phil saw his shadow and predicted six more weeks of winter? That might be the best near-term economic forecast we've got. And it would not be a good one, based on what's been going on with the weather and the economy.
Washington weather permitting, new Federal Reserve boss Janet Yellen is expected to provide her take on the economy as she testifies before a House panel on Tuesday and a Senate panel on Thursday in her first appearances before Congress since taking the Fed chairmanship.
Between recent reports on jobs, auto sales and manufacturing, Old Man Winter has been the economic whipping boy of late, taking the blame for many ills.
Car sales freeze up in the cold
A harsh winter causes the car business to sputter. Will sales thaw when the cold weather eventually eases its grip?
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Mark Hamrick: From Bankrate.com, this is "Your Money This Week."
We connect the dots between what's happening in the world and your wallet.
I'm Mark Hamrick reporting from Washington.
Severe winter weather in many parts of the country has caused more than inconvenience. It is being blamed for slowing some sectors of the economy. One of those areas is car sales.
January saw weaker-than-expected sales for the industry overall. Comfortably inside, away from the bad weather, is Edmunds.com senior analyst Jessica Caldwell. She'll tell us about the latest trends in the automobile industry, including whether it's a good time to buy.
And Bankrate's Lucas Wysocki provides a bit of winter coping strategy, answering the question, whether snow tires are right for you.
And we take a look at this week in business history. A hint: It involves "Riverdale".
All of that and more coming up on "Your Money, This Week."
In January, sales of new cars and trucks hit the equivalent of a pothole. The industry doesn't appear to be too worried about it, though, chalking it up to bad weather across much of the country.
With plenty of new models showing up in showrooms, it's a good time to check in with Jessica Caldwell. She's senior analyst with Edmunds.com.
To begin, we asked her how sales looked last month and whether the weather is to blame.
Jessica Caldwell: I think that weather was a key. I think we really noticed the fact that there were two major polar vortexes that took over the nation in the month of January. After the first one, we started to see sales pick up. When things started to thaw out, people returned to the showrooms and started buying again, and sales were made up. But when the second polar vortex hit, there just was not enough time to make up those sales, and when sales ended it was still really cold in most parts of the country, and there was no time to make up those sales. I really do think it was weather-related. Also, incentives were not really super-high. We kind of had a big November and a good-sized December, but it seems as if January was certainly ho-hum because of the weather and perhaps not as many good deals out there as there had been.
Mark Hamrick: Now, you are located in the state of California, and from what I understand, regionally -- west, where the weather was not obviously quite so severe -- the west did a little better, and that would tend to underscore this whole weather thesis, right?
Jessica Caldwell: Right. The west did, from most accounts, do fairly well. I think what was pronounced about this storm is, of course, it is cold every January, and we know this, but it seemed to have really bad weather in places that really are not really accustomed to snow, in places like Atlanta, Houston -- where they are not necessarily going to hold business or stop selling cars because of the weather -- but it seemed to be definitely a case this January, which is atypical from what we normally see in the wintertime.
Mark Hamrick: So Jessica, then the question is: Would some of the sales that did not occur in these weather-battered regions in the month of January and possibly now into February occur later, where consumers just simply had to delay their purchase?
Jessica Caldwell: Yes, in most cases when we do see the extreme weather -- stuff like Hurricane Sandy, definitely after things recovered -- you started to see the car sales start to ramp up again. Certainly, with this weather pattern, I think that when things thaw out a bit -- although it seems as if there are more storms ahead -- I think that the sales will come back into the market.
Mark Hamrick: As we looked at how the variety of automakers fared, I guess helped by some new products, automakers saw higher sales, including Chrysler, Nissan, Honda and Subaru. What was happening with them, and who are the winners this time around?
Jessica Caldwell: Yes, I think that Subaru is one of those brands that keep just marching on, and it is doing really well. I think during the wintertime, all of their vehicles have all-wheel-drive, so that certainly helps. Also, Jeep did well with a lot of new product, like the Jeep Cherokee. It did seem there were some bright spots out there, but I would say overall most automakers were probably hoping for a better January, but certainly those automakers with new product were helped by those incremental sales.
Mark Hamrick: Who has some of the better products, other than the ones you just mentioned?
Jessica Caldwell: I think the good thing for consumers out there is there are a lot of new things in the market. You have everything from large trucks over at General Motors with the new Chevy Silverado --they did not do as good in the month of January like they normally do, I think, because of the weather-related activity -- but those certainly are good. Also, with the Asian automakers, you have Honda, who has a relatively new Civic and also a relatively new Accord. I think when you look across the landscape, there are so many new cars, and the thing about the auto industry now is that the car cycles are coming out faster, so you are seeing changes happen more often, more frequently, not just a five-year lifecycle, but you will see changes happen every few years, which is different and somewhat exciting for the consumer.
Mark Hamrick: We like to obviously pay attention to what is happening with what we, at least traditionally, identified as the American automakers, and anymore that has really become GM and Ford. How are they doing?
Jessica Caldwell: They are doing fairly well. I think January was a bit tough for them, but because they tend to do well in the Midwest, the Great Lakes area, and that was definitely harder hit from the weather. I think those sales will be made up. I think that they have been doing really strong, if you look at them beyond the context of just January. Ford has a new F-150 coming out later this year which is, I think, really going to change the way people think about trucks, and that is their bread-and-butter product, so that will do really well for them. GM is doing a lot of different new things, and they are doing things globally, too, that are very exciting, and so I think that they have definitely come out of a tough period. I think they are really well-poised for the future.
Mark Hamrick: We can remember a number of years ago when gasoline prices seemed to be abnormally high that, to some degree, Americans got away from buying trucks. And obviously, that was also a function of the depressed housing market. But trucks have really come back, haven't they?
Jessica Caldwell: Yes. Trucks have been strong for over a year now. We saw, in December of 2012, it was still a real pronounced time, since then, that trucks have been coming back. I think that the fact that housing is up and construction is up has really helped that market. That was kind of the last group of customers that were really holding off for their new car purchases, was that truck buyer. I think over the course of 2013 and certainly into 2014, we will see more and more truck buyers come back. With lower gas prices out there, I think that helps, because I think small businesses and people that need these trucks have come back into the market. But a lot of recreational users of trucks have been kind of holding off, and gas prices certainly helps that.
Mark Hamrick: There has been so much buzz about the product that Tesla has put out there, obviously more than one product, but the technology contained within that vehicle has been so transformational. Then, I think about the fact that when new technology comes out, in many ways that technology is replicated. How much is technology changing inside the automobile?
Jessica Caldwell: Oh, my gosh. Technology has changed so, so much I think just in the course of the past few years. If you look, the average vehicle that is traded in is about six years old, and those cars are so much different than cars today. You are not just seeing them in electric vehicles, but you are seeing different types of features: safety-related features, things like rear back-up cameras. Cars like the Honda Civic, a compact car -- not exactly high-end -- but that feature is standard in all Civics. Also, things like blind-spot monitors, front-collision sensors, all of those things that are helping make the driving experience safer and also easier. In addition to safety, you have so much entertainment, to different audio systems, and the quality, and I think that has really helped drive car sales, with just how much technology in vehicles has changed. It is not just the exterior of the car looking nice, but also the features that make the driving experience more pleasurable and safer.
Mark Hamrick: So Jessica, as we get into late winter and early spring here, as consumers head out and look to perhaps purchase a new car, how willing are the dealers/automakers going to be willing to provide incentives -- or wheel and deal, so to speak?
Jessica Caldwell: I think that incentives have been not like they were during the recession. If you look at 2009 landscape versus today, you are not going to get the great deal you had before, but I do not think most people expect that. I think the thing that is helping most consumers out there: Interest rates are low. So, when you look at APR rates, they are fairly low, especially if they are subsidized by the automaker. So you see a lot of those type of deals out there, and also low APR has helped leasing. Leasing has come back in a major way. It is probably a quarter of the entire retail market right now, and that is expected to continue, if not grow. I think that the deals out there are fairly decent, but I would expect them to be more on the finance end rather than those big cash-back offers that we saw during the recession.
Mark Hamrick: Why is it that leasing has become something that the automakers themselves want to do in such a bigger way?
Jessica Caldwell: I think leasing keeps folks in the brand. They have to come back every two to three years. A lot of people like leasing. They like having a new car. They like the worry-free experience. If you are an automaker, you have a built-in clientele there, so I think that works for a lot of people. For some time, there was a lot of backlash against leasing, but I think for certain folks it definitely makes sense. Leasing is more flexible than people think. You can have 15,000 miles, you can get 18,000 miles, and even as high as 21 and 24, I have heard. I think it is something that people should probably take a look at, and automakers have people coming back, and they also get used cars. That has been a real big key over the past few years, because the used car inventory has been relatively low.
Mark Hamrick: Jessica, you are such a great source for information. I was just thinking: Do you have a lot of friends who ask you to go to the dealer lot with them and ask that you be their expert, at their beck and call?
Jessica Caldwell: I do. I get a lot of emails and a lot of questions. The funniest thing is that when my husband needed a new car, he wanted to take the advice of his hairdresser rather than me, which is very funny. (Laughter)
Mark Hamrick: Very indicative of the state of American marriage, isn't it, Jessica?
Jessica Caldwell: (Laughter)
Mark Hamrick: Jessica Caldwell, you are terrific. Thanks so much for your time.
Jessica Caldwell: Thank you. Take care.
Mark Hamrick: Jessica Caldwell is senior analyst with Edmunds.com. She spoke with us from her office in Santa Monica, California.
If you do jump into the market for a car, check out Bankrate.com, where we have all kinds of useful information, including access to auto loan information, and calculators to help you know how much car you can afford.
With front-wheel-, four-wheel- and all-wheel-drive, cars are much better able to handle winter weather now than back in the day. But when should you seriously consider making the change to snow tires? Bankrate's Lucas Wysocki takes a look.
Tire manufacturers might be a little over zealous when they call their tires all-season.
If you live in an area that often gets to cold, but not freezing, temperatures, consider switching your all-weather tires to winter tires.
All-season tires are made from a harder rubber compound that winter tires. Lower temperatures cause them to get brittle, which affects stopping performance, even on dry roads. The winter set will also have better traction during acceleration and grip the road better around turns. This is especially important if roads or bridges ice over.
To save money and for convenience in the long haul, pick up a set of wheels when you shop for winter tires. That way you can swap out your all-season set for the winter set at home instead of having to go through a tire shop and pay for the mounting and balancing. Your local scrap yard might even have a lightly-used set that's the proper size and bolt pattern. For more on this and other personal finance tips, visit Bankrate.com. I'm Lucas Wysocki.
Finally, our look at this week in business history.
February 11, 1942 brought the debut of Archie Comics. More than 2 billion Archie Comics have been sold over the years. Our hint at the beginning of the podcast was Riverdale, the town where the Archie characters are based. The franchise was also responsible for spinning off Josie and the Pussycats and Sabrina the Teenage Witch -- which, in turn, spawned a long-running sitcom.
You've been listening to "Your Money, This Week."
Thanks to our guest, Jessica Caldwell with Edmunds.com.
If you enjoyed the podcast please check us out on iTunes, and rate and subscribe to the program.
We're hoping you can help us get the word out. Also check out our other podcast, "Special Report," with breaking news and special features.
For more on this and other personal finance issues, visit Bankrate.com. And you can follow us on Twitter @bankrate and I'm at @hamrickisms.
Thanks to Lucas Wysocki.
I'm Mark Hamrick. From all of us here at Bankrate, here's hoping you have a great week.
In the coming week, the reports on the economy hit a bit of a dry spell. They include:
- The Commerce Department reports on January retail sales Thursday at 8:30 a.m. (all times Eastern).
- The Federal Reserve reports on January industrial production Friday at 9:15 a.m.
- The University of Michigan reports on February consumer sentiment Friday at 9:55 a.m.
See, we told you there wasn't much.
The focus ultimately always comes back to the consumer, responsible for the bulk of the economy's activity. Consumer spending is "reasonably solid," says Jim O'Sullivan, chief U.S. economist with High Frequency Economics. Still, he says he wouldn't be surprised if the retail sales report was "on the softer side."
The economy was generally regarded as growing at a moderate or modest pace, before winter weather turned remarkably dicey. O'Sullivan says he believes the underlying trends remain respectable.
"I do not see any clear evidence, at least, that the trends are suddenly weakening. I think that is particularly true for the labor market," he says.
The hibernation effect
With many people deciding to stay inside the relative comfort of their homes, businesses including bars and restaurants, auto dealers and retailers in general are likely being hurt by the winter. "These sectors will weigh down overall spending growth in January," says Briefing.com chief economist Jeffrey Rosen.
The trade group National Retail Federation upgraded its outlook for retail sales just a few days ago. It predicts sales, excluding those at automobile sellers, gas stations and restaurants, to rise 4.1 percent this year.
One winner in the retail world will be in the online realm. The group predicts online sales this year to rise between 9 percent and 12 percent.
Putting the sting in your heating bill
At week's end, we'll get a reading on industrial production. That number, from the Federal Reserve, captures output by factories, mines and utilities. Who got the big benefit from winter's blast in that group? You guessed it -- utilities. Rosen says he looks for the report to show a spike in production at utilities during January.
Are consumers smiling?
Like the mercury in a thermometer, the University of Michigan's consumer sentiment gauge creeps up and down quite a bit. The separate reading from The Conference Board on consumer confidence rose for a second straight month in January. Of course, if consumers are more confident but not able or willing to spend, it doesn't matter a whole lot. When and if spring arrives, it will be interesting to see how warmly consumers feel about spending.
This week in business history
This week's trip back in time takes us to Riverdale. Feb. 11, 1942 brought the debut of Archie Comics. More than 2 billion Archie Comics have been sold over the years. The Archie characters are based in Riverdale. The franchise was responsible for spinning off Josie and the Pussycats and Sabrina the Teenage Witch -- which, in turn, spawned a long-running sitcom.
Follow me on Twitter: @Hamrickisms.