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Westlake Legal Group > Inflation (Economics)

Climate Change Could Blow Up the Economy. Banks Aren’t Ready.

Westlake Legal Group merlin_167625216_f9d54ac2-c793-4efe-be3d-4d4683e5610b-facebookJumbo Climate Change Could Blow Up the Economy. Banks Aren’t Ready. World Economic Forum Virtual Currency Villeroy de Galhau, Francois (1959- ) Subprime Mortgage Crisis Lagarde, Christine Inflation (Economics) Global Warming Frankfurt (Germany) Facebook Inc European Central Bank Electric and Hybrid Vehicles Davos (Switzerland) Basel (Switzerland) Banking and Financial Institutions Bank for International Settlements

FRANKFURT — Climate change has already been blamed for deadly bush fires in Australia, dying coral reefs, rising sea levels and ever more cataclysmic storms. Could it also cause the next financial crisis?

A report issued this week by an umbrella organization for the world’s central banks argued that the answer is yes, while warning that central bankers lack tools to deal with what it says could be one of the biggest economic dislocations of all time.

The book-length report, published by the Bank for International Settlements in Basel, Switzerland, signals what could be the overriding theme for central banks in the decade to come.

“Climate change poses unprecedented challenges to human societies, and our community of central banks and supervisors cannot consider itself immune to the risks ahead of us,” François Villeroy de Galhau, governor of the Banque de France, said in the report.

Central banks spent much of the last 10 years hauling their economies out of a deep financial crisis that began in 2008. They may well spend the next decade coping with the disruptive effects of climate change and technology, the report said.

The European Central Bank, which on Thursday concluded a two-day meeting in Frankfurt focusing on monetary policy, is beginning to grapple with those challenges. The bank did not make any changes in interest rates or its economic stimulus program on Thursday. Instead, other issues are coming to the fore.

Christine Lagarde, the central bank’s president, who took office late last year, has pledged to put climate change on the bank’s agenda, and it was a topic of discussion at the last monetary policy meeting, in December.

Members of the European Central Bank’s governing council argued “that there was a need to step up efforts to understand the economic consequences of climate change,” according to the bank’s official account of the discussion.

Global warming will play a big role in the European Central Bank’s strategic review, a broad reassessment of the way the bank tries to manage inflation. For example, when trying to influence market interest rates, the bank could decide to stop buying bonds of corporations considered big producers of greenhouse gases.

This new awareness of the financial consequences of a hotter earth comes as central banks are contending with another new challenge: technologies that threaten their monopoly on issuing money and their power to combat a financial crisis.

Unofficial digital currencies like Bitcoin or Facebook’s Libra, which is still in the planning stages, bypass central banks and could undermine their control of the monetary system. The obvious solution is for central banks to get into the digital currency business themselves.

On Wednesday, the central banks of Canada, Britain, Japan, Sweden and Switzerland said they were working together with the Bank for International Settlements to figure out what would happen if they did just that.

It’s complicated, though.

Like cash, people can use digital currencies to pay other people directly, without a bank in the middle. Unlike cash, digital currencies allow person-to-person transactions to take place online.

Such a system could be more efficient, but also risky, according to a report issued on Wednesday by the World Economic Forum, the organization that stages the annual conclave in Davos.

Commercial banks might become superfluous, and fail. Central banks would in effect become giant retail banks. But they have no experience dealing with millions of individual customers and could be overwhelmed. If a central bank collapsed, so would the monetary system.

Climate change also takes central banks into uncharted territory. Think the subprime crisis in 2008 was bad? Imagine a real estate crisis caused by rising sea levels and coastal flooding that renders thousands of square miles of land uninhabitable or useless for farming.

By some estimates, global gross domestic product could plunge by 25 percent because of the effects of climate change. Central banks have enough trouble dealing with mild recessions, and would not be powerful enough to combat an economic downturn of that scale.

“In the worst case scenario, central banks may have to intervene as climate rescuers of last resort or as some sort of collective insurer for climate damages,” according to the report, published by the Bank for International Settlements, a clearinghouse for the world’s major central banks.

It suggested some precautionary measures central banks could take.

Central banks, which often function as bank regulators, could require lenders to hold more capital if they hold assets vulnerable to the economic effects of a shift to renewable energy. An example might be a bank that has lent a lot of money to fossil fuel companies, or to the Saudi government.

The auto industry already illustrates how investors are moving their money away from companies seen as polluters and into companies seen as green, with disruptive effects on economies. Tesla’s value on the stock market is more than $100 billion, second only to Toyota among carmakers.

In this way, Tesla is being rewarded for producing emission-free electric vehicles. But the migration of capital away from the established manufacturers makes it difficult for them to invest in new technology, and threatens massive job losses and social and political upheaval.

Central banks need to coordinate their policies to deal with these new challenges, according to the Bank for International Settlements report. Unfortunately, coordination is not something that central banks are very good at right now.

“Climate change is a global problem that demands a global solution,” the paper said. But it added that “monetary policy seems, currently, to be difficult to coordinate between countries.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Climate Change Could Cause the Next Financial Meltdown

Westlake Legal Group merlin_167625216_f9d54ac2-c793-4efe-be3d-4d4683e5610b-facebookJumbo Climate Change Could Cause the Next Financial Meltdown World Economic Forum Virtual Currency Villeroy de Galhau, Francois (1959- ) Subprime Mortgage Crisis Lagarde, Christine Inflation (Economics) Global Warming Frankfurt (Germany) Facebook Inc European Central Bank Electric and Hybrid Vehicles Davos (Switzerland) Basel (Switzerland) Banking and Financial Institutions Bank for International Settlements

FRANKFURT — Climate change has already been blamed for deadly bush fires in Australia, dying coral reefs, rising sea levels and ever more cataclysmic storms. Could it also cause the next financial crisis?

A report issued this week by an umbrella organization for the world’s central banks argued that the answer is yes, while warning that central bankers lack tools to deal with what it says could be one of the biggest economic dislocations of all time.

The book-length report, published by the Bank for International Settlements in Basel, Switzerland, signals what could be the overriding theme for central banks in the decade to come.

“Climate change poses unprecedented challenges to human societies, and our community of central banks and supervisors cannot consider itself immune to the risks ahead of us,” François Villeroy de Galhau, governor of the Banque de France, said in the report.

Central banks spent much of the last 10 years hauling their economies out of a deep financial crisis that began in 2008. They may well spend the next decade coping with the disruptive effects of climate change and technology, the report said.

The European Central Bank, which on Thursday concluded a two-day meeting in Frankfurt focusing on monetary policy, is beginning to grapple with those challenges. The bank did not make any changes in interest rates or its economic stimulus program on Thursday. Instead, other issues are coming to the fore.

Christine Lagarde, the central bank’s president, who took office late last year, has pledged to put climate change on the bank’s agenda, and it was a topic of discussion at the last monetary policy meeting, in December.

Members of the European Central Bank’s governing council argued “that there was a need to step up efforts to understand the economic consequences of climate change,” according to the bank’s official account of the discussion.

Global warming will play a big role in the European Central Bank’s strategic review, a broad reassessment of the way the bank tries to manage inflation. For example, when trying to influence market interest rates, the bank could decide to stop buying bonds of corporations considered big producers of greenhouse gases.

This new awareness of the financial consequences of a hotter earth comes as central banks are contending with another new challenge: technologies that threaten their monopoly on issuing money and their power to combat a financial crisis.

Unofficial digital currencies like Bitcoin or Facebook’s Libra, which is still in the planning stages, bypass central banks and could undermine their control of the monetary system. The obvious solution is for central banks to get into the digital currency business themselves.

On Wednesday, the central banks of Canada, Britain, Japan, Sweden and Switzerland said they were working together with the Bank for International Settlements to figure out what would happen if they did just that.

It’s complicated, though.

Like cash, people can use digital currencies to pay other people directly, without a bank in the middle. Unlike cash, digital currencies allow person-to-person transactions to take place online.

Such a system could be more efficient, but also risky, according to a report issued on Wednesday by the World Economic Forum, the organization that stages the annual conclave in Davos.

Commercial banks might become superfluous, and fail. Central banks would in effect become giant retail banks. But they have no experience dealing with millions of individual customers and could be overwhelmed. If a central bank collapsed, so would the monetary system.

Climate change also takes central banks into uncharted territory. Think the subprime crisis in 2008 was bad? Imagine a real estate crisis caused by rising sea levels and coastal flooding that renders thousands of square miles of land uninhabitable or useless for farming.

By some estimates, global gross domestic product could plunge by 25 percent because of the effects of climate change. Central banks have enough trouble dealing with mild recessions, and would not be powerful enough to combat an economic downturn of that scale.

“In the worst case scenario, central banks may have to intervene as climate rescuers of last resort or as some sort of collective insurer for climate damages,” according to the report, published by the Bank for International Settlements, a clearinghouse for the world’s major central banks.

It suggested some precautionary measures central banks could take.

Central banks, which often function as bank regulators, could require lenders to hold more capital if they hold assets vulnerable to the economic effects of a shift to renewable energy. An example might be a bank that has lent a lot of money to fossil fuel companies, or to the Saudi government.

The auto industry already illustrates how investors are moving their money away from companies seen as polluters and into companies seen as green, with disruptive effects on economies. Tesla’s value on the stock market is more than $100 billion, second only to Toyota among carmakers.

In this way, Tesla is being rewarded for producing emission-free electric vehicles. But the migration of capital away from the established manufacturers makes it difficult for them to invest in new technology, and threatens massive job losses and social and political upheaval.

Central banks need to coordinate their policies to deal with these new challenges, according to the Bank for International Settlements report. Unfortunately, coordination is not something that central banks are very good at right now.

“Climate change is a global problem that demands a global solution,” the paper said. But it added that “monetary policy seems, currently, to be difficult to coordinate between countries.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Climate Change Could Cause the Next Financial Meltdown

Westlake Legal Group merlin_167625216_f9d54ac2-c793-4efe-be3d-4d4683e5610b-facebookJumbo Climate Change Could Cause the Next Financial Meltdown World Economic Forum Virtual Currency Villeroy de Galhau, Francois (1959- ) Subprime Mortgage Crisis Lagarde, Christine Inflation (Economics) Global Warming Frankfurt (Germany) Facebook Inc European Central Bank Electric and Hybrid Vehicles Davos (Switzerland) Basel (Switzerland) Banking and Financial Institutions Bank for International Settlements

FRANKFURT — Climate change has already been blamed for deadly bush fires in Australia, dying coral reefs, rising sea levels and ever more cataclysmic storms. Could it also cause the next financial crisis?

A report issued this week by an umbrella organization for the world’s central banks argued that the answer is yes, while warning that central bankers lack tools to deal with what it says could be one of the biggest economic dislocations of all time.

The book-length report, published by the Bank for International Settlements in Basel, Switzerland, signals what could be the overriding theme for central banks in the decade to come.

“Climate change poses unprecedented challenges to human societies, and our community of central banks and supervisors cannot consider itself immune to the risks ahead of us,” François Villeroy de Galhau, governor of the Banque de France, said in the report.

Central banks spent much of the last 10 years hauling their economies out of a deep financial crisis that began in 2008. They may well spend the next decade coping with the disruptive effects of climate change and technology, the report said.

The European Central Bank, which on Thursday concluded a two-day meeting in Frankfurt focusing on monetary policy, is beginning to grapple with those challenges. The bank did not make any changes in interest rates or its economic stimulus program on Thursday. Instead, other issues are coming to the fore.

Christine Lagarde, the central bank’s president, who took office late last year, has pledged to put climate change on the bank’s agenda, and it was a topic of discussion at the last monetary policy meeting, in December.

Members of the European Central Bank’s governing council argued “that there was a need to step up efforts to understand the economic consequences of climate change,” according to the bank’s official account of the discussion.

Global warming will play a big role in the European Central Bank’s strategic review, a broad reassessment of the way the bank tries to manage inflation. For example, when trying to influence market interest rates, the bank could decide to stop buying bonds of corporations considered big producers of greenhouse gases.

This new awareness of the financial consequences of a hotter earth comes as central banks are contending with another new challenge: technologies that threaten their monopoly on issuing money and their power to combat a financial crisis.

Unofficial digital currencies like Bitcoin or Facebook’s Libra, which is still in the planning stages, bypass central banks and could undermine their control of the monetary system. The obvious solution is for central banks to get into the digital currency business themselves.

On Wednesday, the central banks of Canada, Britain, Japan, Sweden and Switzerland said they were working together with the Bank for International Settlements to figure out what would happen if they did just that.

It’s complicated, though.

Like cash, people can use digital currencies to pay other people directly, without a bank in the middle. Unlike cash, digital currencies allow person-to-person transactions to take place online.

Such a system could be more efficient, but also risky, according to a report issued on Wednesday by the World Economic Forum, the organization that stages the annual conclave in Davos.

Commercial banks might become superfluous, and fail. Central banks would in effect become giant retail banks. But they have no experience dealing with millions of individual customers and could be overwhelmed. If a central bank collapsed, so would the monetary system.

Climate change also takes central banks into uncharted territory. Think the subprime crisis in 2008 was bad? Imagine a real estate crisis caused by rising sea levels and coastal flooding that renders thousands of square miles of land uninhabitable or useless for farming.

By some estimates, global gross domestic product could plunge by 25 percent because of the effects of climate change. Central banks have enough trouble dealing with mild recessions, and would not be powerful enough to combat an economic downturn of that scale.

“In the worst case scenario, central banks may have to intervene as climate rescuers of last resort or as some sort of collective insurer for climate damages,” according to the report, published by the Bank for International Settlements, a clearinghouse for the world’s major central banks.

It suggested some precautionary measures central banks could take.

Central banks, which often function as bank regulators, could require lenders to hold more capital if they hold assets vulnerable to the economic effects of a shift to renewable energy. An example might be a bank that has lent a lot of money to fossil fuel companies, or to the Saudi government.

The auto industry already illustrates how investors are moving their money away from companies seen as polluters and into companies seen as green, with disruptive effects on economies. Tesla’s value on the stock market is more than $100 billion, second only to Toyota among carmakers.

In this way, Tesla is being rewarded for producing emission-free electric vehicles. But the migration of capital away from the established manufacturers makes it difficult for them to invest in new technology, and threatens massive job losses and social and political upheaval.

Central banks need to coordinate their policies to deal with these new challenges, according to the Bank for International Settlements report. Unfortunately, coordination is not something that central banks are very good at right now.

“Climate change is a global problem that demands a global solution,” the paper said. But it added that “monetary policy seems, currently, to be difficult to coordinate between countries.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Trump Says the Fed Prevented 4% Growth. That Isn’t True.

Westlake Legal Group 22DC-FEDGROWTH-facebookJumbo Trump Says the Fed Prevented 4% Growth. That Isn’t True. United States Economy Productivity International Trade and World Market Interest Rates Inflation (Economics)

WASHINGTON — President Trump has repeatedly blamed the Federal Reserve’s interest rate policy for preventing the American economy from reaching the 4 percent growth he had promised. On Wednesday, Mr. Trump renewed that criticism from the sidelines of an elite gathering in Davos, Switzerland.

“No. 1, the Fed was not good,” Mr. Trump told CNBC when asked why economic growth was closer to 2 percent last year. Data for the full year isn’t in yet, but the economy probably expanded at 2.2 percent or 2.3 percent relative to the fourth quarter of 2018, economists estimate.

Mr. Trump also pointed to the grounding of Boeing’s 737 Max plane and severe storms as factors that held back the economy, but added that “with all of that, had we not done the big raise on interest, I think we would have been close to 4 percent.”

Economists said that claim was not realistic.

The central bank’s nine interest rate increases between 2015 and late 2018 — three of which it reversed last year — probably reined in business investment and the housing market, economists say. But that impact did not shave nearly 2 percentage points from economic growth. It is hard to know how big of a drag it did create, since Mr. Trump’s trade war was weighing down business sentiment and investment simultaneously.

Here are a few ways to think through how the economy might have shaped up had the Fed acted differently.

In the real world, the Fed lifted rates between December 2015 and the end of 2018 in an effort to achieve a soft landing: one in which growth continued at a moderate pace and inflation, which the Fed is supposed to keep under control, settled around its 2 percent target.

When growth showed signs of wavering in 2019 and inflation remained soft, Fed officials reversed course, cutting rates three times.

In the most extreme counterfactual, one in which the Fed never raised its policy interest rate at all, growth might have been 1 percentage point higher in 2019, said Ernie Tedeschi, policy economist at Evercore ISI.

That estimate, which he based on the central bank’s main economic model, would have gotten America to around 3.2 percent growth in 2019 — but at a hefty cost.

“Inflation would’ve been well above their mandate, 2.5 percent and rising, at this point,” Mr. Tedeschi said. Price gains are like an aircraft carrier — they’re hard to turn around once they get going — so that would have necessitated a sharp increase in rates. Such an abrupt change could have plunged the economy into recession.

“It would certainly be painful,” Mr. Tedeschi said.

But even in that version of the world, one in which the Fed was willing to play with fire by leaving its policy totally untouched at near-zero for more than a decade, the economy could have achieved that 4 percent growth figure only absent a trade war — and even that is a stretch.

While it’s hard to gauge precisely how much Mr. Trump’s tariffs reduced growth, estimates suggest they could have shaved between 0.5 and 1 percentage point away in 2019, Mr. Tedeschi said.

All of these projections are highly uncertain — it is difficult to know how the world would have shaped up after the fact, and it is impossible to know how policies would have interacted.

And even if the basic figures are right, this scenario is unrealistic. Leaving interest rates at rock bottom would have been expected to generate unsustainable economic conditions. That runs contrary to the Fed’s very mission, given to it by Congress.

In another version of the world, the Fed could have raised interest rates between 2015 and 2018, but then lowered them much more quickly in 2019 as inflation pressures remained muted. Had they dropped the federal funds rate to zero at the very start of the year, Mr. Tedeschi said, it might have added about 0.35 percentage point to growth, getting the economy up to the 2.5 percent range.

That is also far-fetched — the Fed has never slashed rates to zero outside of a recession. Doing so at a time when the economy was growing and Mr. Trump was pushing for a move would have looked overtly political, threatening the central bank’s prized independence. It could have raised the risk of higher inflation. And even if conventional models are totally broken and price pressures no longer respond to loose Fed policy, rock-bottom rates at the height of an expansion could have helped to fuel financial excesses.

So how did the Fed’s actual policies affect growth?

Relative to the economy’s structural growth path — the one driven by labor force expansion and productivity — the Fed’s rate-setting may have shaved about 0.1 percentage point from growth in 2019, according to an estimate from Julia Coronado, a founder of MacroPolicy Perspectives. Slower capital expenditures and trade probably shaved another 0.1 percentage point from growth. But those effects were offset by the aftereffect of ramped-up government spending and tax cuts, which she estimates probably lifted growth by about 0.4 percentage point.

But even here, there are uncertainties.

While it is clear that business investment fell sharply last year and manufacturing sagged, weighing down growth, it is hard to tell how much of that was a lagged response to higher interest rates and how much was a response to the trade war.

Anecdotally, businesses primarily blamed slower global growth and uncertainty stemming from the tariffs for that slump.

But interest rates probably had at least some economic impact. After the central bank cut them three times between July and December 2019, the wavering housing market perked back up, for instance.

“The slowdown in capital expenditures came along when the trade war escalated,” Torsten Slok, an economist at Deutsche Bank, said in an interview. “One cautious estimate is that the trade war played a bigger role,” he said, but “it’s just really difficult to wiggle out which was the cause.”

The upshot: The Fed matters around the edges, but, in the longer run, it is unlikely that the economy can achieve the 4 percent growth Mr. Trump has promised.

Tax cuts and higher government spending have helped to nudge growth temporarily above its potential — it came in at 2.8 percent in 2017 and 2.5 percent in 2018, decently above the roughly 2 percent sustainable growth rate.

Yet those gains probably will not hold. The working-age population is growing more slowly, and productivity, which popped temporarily, has since fallen back to earth. The ingredients for naturally higher economic growth do not exist.

The Congressional Budget Office estimates that over the next decade, growth will average 1.9 percent a year, up slightly from the preceding decade but down substantially from the 3 percent and higher growth that prevailed before 2000.

“We haven’t seen 4 percent growth for many, many years,” Mr. Slok said.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

The Economy Is Expanding. Why Are Economists So Glum?

Westlake Legal Group 08DC-ECON-02-facebookJumbo The Economy Is Expanding. Why Are Economists So Glum? Wages and Salaries United States Economy Unemployment Taxation Recession and Depression Productivity National Debt (US) International Trade and World Market Interest Rates Inflation (Economics) Immigration and Emigration Federal Taxes (US) Federal Budget (US) Economic Conditions and Trends Banking and Financial Institutions

SAN DIEGO — The mood among economic forecasters gathered for their annual meeting last weekend was dark. They warned one another about President Trump’s trade war, about government budget deficits and, repeatedly, about the inability of central banks to fully combat another recession should one sweep the globe anytime soon.

Among the thousands of economists gathered for the profession’s annual meeting, there was little celebration of Mr. Trump’s economic policies, even though unemployment is at a 50-year low, wages are rising and the economy is experiencing its longest expansion on record.

Underlying their sense of foreboding was a widespread sentiment that the current expansion is built on a potentially shaky combination of high deficits and low interest rates — and when it ends, as it is bound to do eventually, it could do so painfully.

Those concerns were echoed on Wednesday by economists at the World Bank, who called the worldwide expansion “fragile” in their latest “Global Economic Prospects” report. The report forecasts a slight uptick in growth in 2020 after a sluggish year bogged down by trade tensions and weak investment. But it said “downside risks predominate,” including the potential escalation of trade fights, sharp slowdowns in the United States and other wealthy countries and financial disruptions in emerging markets like China and India.

“The materialization of these risks would test the ability of policymakers to respond effectively to negative events,” the report by the bank, which is led by David Malpass, a former Trump administration official, stated.

The bank’s warnings echoed the fears expressed by many economists in San Diego, both in small research-paper presentations and in ballroom discussions of the clouds on the global economic horizon.

Trade tensions between the United States and China have cooled at least temporarily, but they are escalating across the Atlantic as European nations begin to impose new taxes on technology companies that are largely based in the United States. Mr. Trump has already threatened tariffs on French goods in retaliation for a tech tax, and many analysts worry that separate trade talks between the United States and the European Union could end in a tariff war. Manufacturing is mired in a global slowdown, with the sector contracting in the United States.

At a packed room in San Diego last week, researchers presented estimates that tariffs imposed by the United States and China — which remain in place despite the recent truce in trade talks — have reduced wages for workers in both countries already.

The American economy appears to have grown by a little more than 2 percent in 2019, though the statistics are not yet fully compiled. That is likely to be the slowest rate of Mr. Trump’s presidency, and well below the growth he promised that his economic and regulatory policies would produce.

The World Bank estimates growth in the United States will slow to 1.8 percent this year and 1.7 percent next year. That would be nearly the lowest annual rate since the last recession ended in mid-2009. The bank said the forecast reflected fading stimulus from Mr. Trump’s signature 2017 tax cuts and from government spending increases he has signed into law.

The cuts, and to a lesser degree the additional spending, have helped push the federal budget deficit to nearly $1 trillion a year, even as unemployment lingers near a half-century low. Fiscal deficits remain high in several other wealthy nations, particularly given how far into an economic expansion those countries are.

Interest rates have been dropping across advanced economies, thanks to long-running trends like population aging. That leaves central banks — which usually stoke growth by making borrowing cheaper — with far less conventional power in a recession.

Economists have been “going through the stages of grief” as they accept that such low rates are likely to prevail, John C. Williams, who leads the Federal Reserve Bank of New York, said at the weekend’s gathering.

After the 2007-09 recession, economists speculated that the conditions that plagued developed nations — low growth, low inflation and low interest rates — would be short-lived. Scars were still healing after the worst downturn since the Great Depression, they thought.

That view has slowly been replaced by a more pessimistic one, as the field acknowledged that economic gains were likely to remain muted across advanced countries. In 2019, the Fed had to step back from plans to raise rates further and cut borrowing costs instead, leaving its policy rate at less than half of its 2007 level and underlining just how diminished the new normal looks.

“It’s clear that more was, and still is, going on,” Janet L. Yellen, the former Federal Reserve chair said at the event. “Although monetary policy has a meaningful role to play in addressing future downturns, it is unlikely to be sufficient in years ahead for several reasons.”

Ms. Yellen emphasized that government spending would need to play a larger role in combating future downturns, calling for stronger automatic stabilizers, which increase government spending when the economy weakens and tax receipts fall. There is no imminent sign that Congress is ready to enact such policies, but hope for government action was a constant refrain in San Diego.

Sluggish growth in worker productivity has held back the economy, said Valerie A. Ramey, an economist at the University of California, San Diego. She called on lawmakers to increase spending on infrastructure and research and development in order to spur a productivity acceleration.

Ms. Yellen, who assumed the presidency of the American Economic Association at the meeting, oversaw its program of panels and presentations, assembling a lineup that included several papers assessing damage from tariffs and the trade war. She said she and her colleagues rejected four proposals for every five that were submitted, choosing some that showed the benefits to advanced economies of attracting immigrants, particularly highly skilled ones, in stark contrast to Mr. Trump’s hard line on immigration to the United States.

Few of the papers presented assessed Mr. Trump’s tax law, and none of them argued, as Mr. Trump’s advisers did at similar conferences in recent years, that the tax cuts were supercharging investment.

In an interview on Saturday morning, over a buffet breakfast in a hotel restaurant with a view of the swimming pool, Ms. Yellen said that she had a reason for picking the sessions she did, calling low interest rates the macroeconomic “issue of our times.” She said she shared other economists’ concerns about trade and economic policy in the current environment.

“You do see a number of sessions in the program about this,” Ms. Yellen said. “I organized the program, and I think it’s not an accident you’re seeing it. I think it’s very important.”

Ben S. Bernanke, who was Fed chair during the 2007-09 recession, told the conference that a juiced-up monetary policy arsenal should be enough to combat the next downturn.

But “on one point we can be certain: The old methods won’t do,” he said. The Fed will need to use bond-buying and other tricks to supplement rate cuts.

And even economists’ most hopeful takes had a gray lining. Mr. Bernanke’s relative optimism hinged on the idea that interest rates would not continue to fall. Ms. Yellen’s hope for the future turned on greater activism from politicians to fight recessions.

If those things do not happen? The United States could look more like Japan, where inflation has slipped much lower, rates are rock bottom and the budget deficit much larger.

In good times, said Adam S. Posen, president of the Peterson Institute for International Economics, that may not be the worst outcome. In a recession, though, the nation’s example may offer bad news. In the years since the financial crisis, Japan has rolled out an extremely active economic policy — both monetary and fiscal — to move its inflation rate back up, and it has succeeded only in averting outright price declines.

“It is wise to be cautious, and not assume that they will be as effective as we think,” Mr. Posen said of monetary policies. “We need to think about different ways of doing fiscal-monetary coordination.”

And while some economists, such as Harvard’s Lawrence H. Summers, extolled high fiscal deficits as a necessary weapon against slowdown or recession, others, such as Harvard’s N. Gregory Mankiw and Kenneth Rogoff and Stanford’s Michael J. Boskin, presented research warning that high levels of government debt could crimp growth.

Those papers echoed warnings that those economists issued earlier in the expansion that did not come to pass. But they argued that the large amounts of federal debt that has accumulated in the meantime posed a threat. In other words, the economists warned, it is only a matter of time.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Low Interest Rates Worry the Fed. Ben Bernanke Has Some Ideas.

Westlake Legal Group 04dc-fed-facebookJumbo Low Interest Rates Worry the Fed. Ben Bernanke Has Some Ideas. United States Economy Unemployment Recession and Depression Interest Rates Inflation (Economics) Federal Reserve System Bernanke, Ben S

SAN DIEGO — Ben S. Bernanke, the former Federal Reserve chair, said on Saturday that the types of extraordinary steps the Fed employed to help pull the economy out of the Great Recession should make up for the central bank’s limited room to cut interest rates in the event of another downturn — but that is contingent on a big “if.”

As long as the neutral interest rate — the setting at which Fed policy neither stokes nor slows growth — remains from 2 percent to 3 percent counting inflation, the Fed should be able to rely on tactics like snapping up bonds and promising to keep rates low in the event of another recession. But the neutral rate has been creeping lower for decades, dragged down by powerful and slow-moving forces like population aging. Should it continue to fall, the tricks Mr. Bernanke and his Fed used to coax the economy back from the brink in the 2007 to 2009 recession might prove insufficient.

In that case, “a moderate increase in the inflation target or significantly greater reliance on active fiscal policy for economic stabilization, might become necessary,” Mr. Bernanke said in a speech delivered in San Diego at the economics profession’s biggest annual meeting.

The Fed currently targets 2 percent annual inflation, a level it believes is low enough to allow for comfort and confidence on Main Street while leaving the central bank enough room to cut rates, which incorporate price changes, in a downturn. That target is meant to be symmetric, meaning that the Fed is equally unhappy if prices run below or above 2 percent.

While Mr. Bernanke expects the neutral rate to stay high enough that such action will not be necessary, just the admission that a higher inflation target could become appropriate — something officials have been loath to consider and Mr. Bernanke himself has argued against — is a major statement.

Coming from a giant of modern macroeconomics, it underscores just how worried the field as a whole has become about the long-running decline in borrowing costs.

The former Fed chair Janet L. Yellen, in an interview in San Diego, called very low rates the macroeconomic “issue of our times.”

The Fed made 5 percentage points worth of rate cuts, lowering the federal funds rate to near zero, in the last downturn before beginning to buy bonds and rolling out other unconventional policies to stimulate the economy. Despite their efforts, the expansion that followed was plodding, leaving millions out of work for months on end.

While the economy has recovered and unemployment has fallen to a 50-year low, interest rates have not returned to precrisis levels. Currently, the policy interest rate is set at 1.5 percent to 1.75 percent, leaving far less room to cut in the next crisis.

Mr. Bernanke said policymakers should be able to compensate using a patchwork of other tools. They might eke out ammunition equivalent to 3 more percentage points of rate cuts by deploying mass bond-buying and promises to keep rates lower for longer, based on his analysis.

Such an approach “can largely compensate for the effects of the lower bound,” Mr. Bernanke said. He also said the Fed could keep other new tools in its back pocket, including by maintaining “constructive ambiguity” about negative interest rates.

“On one point we can be certain: The old methods won’t do,” he said.

America is not alone in running low on monetary ammunition.

Many advanced economies, including Japan and Germany, have seen interest rates slump lower as populations age, households and businesses save more and productivity slows. How much each driver matters remains up for debate. But what is increasingly obvious is some common force is at work.

As the change has taken hold, economists — and especially those at the Fed — have become increasingly concerned. The president of the Federal Reserve Bank of New York, John C. Williams, and his co-authors declared several years ago that shared global changes were likely driving rates lower.

Before long, their colleagues had estimated that lower policy interest rates could mean the United States will have rock bottom interest rates as much as one-third of the time.

Compounding the Fed’s problem, inflation has dropped lower. Price gains are incorporated into rates, so weaker gains mean less room to cut.

Under the leadership of the Fed chair, Jerome H. Powell, the central bank has been carrying out a review of its policy framework, researching and talking through how it might supplement its policy tool kit and keep inflation from drifting lower. That process is expected to wrap up in mid-2020.

In a blog post released Saturday, Mr. Bernanke endorsed arguably the most activist proposal aired to date, one laid out by a Fed governor, Lael Brainard, in a 2019 speech. Ms. Brainard suggested that the Fed commit itself to keeping rates lower for longer in advance, tying that pledge to the inflation rate, while also targeting rates on bonds with specific time horizons.

To be sure, the current situation is not all bad news.

In a world with lower inflation rates, for instance, the Fed can allow the unemployment rate to fall lower without worrying that prices will heat up too much, Mary C. Daly, the president of the Federal Reserve Bank of San Francisco, said on a panel at the gathering on Friday.

But that benefit comes at a potentially perilous cost. Inflation could slip dangerously low, as households and consumers come to expect weak gains and act accordingly — that seems to have happened in Japan. And if that happens, the Fed will have ever-less room to cut rates.

“Low inflation can become a self-perpetuating trap,” Mr. Bernanke said. “The costs associated with a very low neutral rate, measured in terms of deeper and longer recessions and inflation persistently below target, underscore the importance for central banks of keeping inflation and inflation expectations close to target.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Low Interest Rates Worry the Fed. Ben Bernanke Has Some Ideas.

Westlake Legal Group 04dc-fed-facebookJumbo Low Interest Rates Worry the Fed. Ben Bernanke Has Some Ideas. United States Economy Unemployment Recession and Depression Interest Rates Inflation (Economics) Federal Reserve System Bernanke, Ben S

SAN DIEGO — Ben S. Bernanke, the former Federal Reserve chair, said on Saturday that the types of extraordinary steps the Fed employed to help pull the economy out of the Great Recession should make up for the central bank’s limited room to cut interest rates in the event of another downturn — but that is contingent on a big “if.”

As long as the neutral interest rate — the setting at which Fed policy neither stokes nor slows growth — remains from 2 percent to 3 percent counting inflation, the Fed should be able to rely on tactics like snapping up bonds and promising to keep rates low in the event of another recession. But the neutral rate has been creeping lower for decades, dragged down by powerful and slow-moving forces like population aging. Should it continue to fall, the tricks Mr. Bernanke and his Fed used to coax the economy back from the brink in the 2007 to 2009 recession might prove insufficient.

In that case, “a moderate increase in the inflation target or significantly greater reliance on active fiscal policy for economic stabilization, might become necessary,” Mr. Bernanke said in a speech delivered in San Diego at the economics profession’s biggest annual meeting.

The Fed currently targets 2 percent annual inflation, a level it believes is low enough to allow for comfort and confidence on Main Street while leaving the central bank enough room to cut rates, which incorporate price changes, in a downturn. That target is meant to be symmetric, meaning that the Fed is equally unhappy if prices run below or above 2 percent.

While Mr. Bernanke expects the neutral rate to stay high enough that such action will not be necessary, just the admission that a higher inflation target could become appropriate — something officials have been loath to consider and Mr. Bernanke himself has argued against — is a major statement.

Coming from a giant of modern macroeconomics, it underscores just how worried the field as a whole has become about the long-running decline in borrowing costs.

The former Fed chair Janet L. Yellen, in an interview in San Diego, called very low rates the macroeconomic “issue of our times.”

The Fed made 5 percentage points worth of rate cuts, lowering the federal funds rate to near zero, in the last downturn before beginning to buy bonds and rolling out other unconventional policies to stimulate the economy. Despite their efforts, the expansion that followed was plodding, leaving millions out of work for months on end.

While the economy has recovered and unemployment has fallen to a 50-year low, interest rates have not returned to precrisis levels. Currently, the policy interest rate is set at 1.5 percent to 1.75 percent, leaving far less room to cut in the next crisis.

Mr. Bernanke said policymakers should be able to compensate using a patchwork of other tools. They might eke out ammunition equivalent to 3 more percentage points of rate cuts by deploying mass bond-buying and promises to keep rates lower for longer, based on his analysis.

Such an approach “can largely compensate for the effects of the lower bound,” Mr. Bernanke said. He also said the Fed could keep other new tools in its back pocket, including by maintaining “constructive ambiguity” about negative interest rates.

“On one point we can be certain: The old methods won’t do,” he said.

America is not alone in running low on monetary ammunition.

Many advanced economies, including Japan and Germany, have seen interest rates slump lower as populations age, households and businesses save more and productivity slows. How much each driver matters remains up for debate. But what is increasingly obvious is some common force is at work.

As the change has taken hold, economists — and especially those at the Fed — have become increasingly concerned. The president of the Federal Reserve Bank of New York, John C. Williams, and his co-authors declared several years ago that shared global changes were likely driving rates lower.

Before long, their colleagues had estimated that lower policy interest rates could mean the United States will have rock bottom interest rates as much as one-third of the time.

Compounding the Fed’s problem, inflation has dropped lower. Price gains are incorporated into rates, so weaker gains mean less room to cut.

Under the leadership of the Fed chair, Jerome H. Powell, the central bank has been carrying out a review of its policy framework, researching and talking through how it might supplement its policy tool kit and keep inflation from drifting lower. That process is expected to wrap up in mid-2020.

In a blog post released Saturday, Mr. Bernanke endorsed arguably the most activist proposal aired to date, one laid out by a Fed governor, Lael Brainard, in a 2019 speech. Ms. Brainard suggested that the Fed commit itself to keeping rates lower for longer in advance, tying that pledge to the inflation rate, while also targeting rates on bonds with specific time horizons.

To be sure, the current situation is not all bad news.

In a world with lower inflation rates, for instance, the Fed can allow the unemployment rate to fall lower without worrying that prices will heat up too much, Mary C. Daly, the president of the Federal Reserve Bank of San Francisco, said on a panel at the gathering on Friday.

But that benefit comes at a potentially perilous cost. Inflation could slip dangerously low, as households and consumers come to expect weak gains and act accordingly — that seems to have happened in Japan. And if that happens, the Fed will have ever-less room to cut rates.

“Low inflation can become a self-perpetuating trap,” Mr. Bernanke said. “The costs associated with a very low neutral rate, measured in terms of deeper and longer recessions and inflation persistently below target, underscore the importance for central banks of keeping inflation and inflation expectations close to target.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Low Rates, Cheap Gas and Deeper Debt Sustain Car Buying Boom

The auto industry has been on a roll for a decade, and its resurgence shows few signs of coming to a halt — at least for now.

Strong employment, low interest rates and robust consumer confidence combined last year to extend a record run of auto sales.

Americans are also continuing to buy ever bigger cars, at prices escalating faster than the overall inflation rate. And they are taking on more debt to do so.

Nationwide, automakers sold more than 17 million new cars and light trucks in 2019, the market-research firm Edmunds estimated Friday. It was the fifth straight year of sales exceeding that figure, a distinction never achieved before.

Some automakers, notably Ford, have yet to report their final figures for the year. When they do, the total is likely to be slightly below the 17.3 million vehicles sold in 2018.

“We are past the peak,” said Mark Wakefield, a managing director at AlixPartners, a consulting firm with a large automotive practice. “But we are better off than we thought we would be going into 2019,” he added, largely because of interest rate cuts by the Federal Reserve.

Low fuel prices have also helped. The average retail price of regular gasoline was at $2.57 this week and has not been above $3 in more than five years, according to the Energy Information Administration.

That helps explain why consumers continued gravitating toward pickup trucks, sport utility vehicles and other roomy models, offsetting another steep fall in sales of sedans and compacts. Nearly two out of every three new models purchased last year were classified as light trucks — which includes minivans and even some small, S.U.V.-shaped cars.

Better Sales, Bigger Prices

Despite a steady increase in the average sales price, auto sales have topped 17 million for five years in a row.

Westlake Legal Group 0104-biz-webAUTO-Artboard_2 Low Rates, Cheap Gas and Deeper Debt Sustain Car Buying Boom United States Economy Prices (Fares, Fees and Rates) Inflation (Economics) Credit and Debt Consumer Behavior Automobiles Automobile Financing

AVERAGE U.S. AUTO PRICE*

’19

$37,183

Inflation-adjusted

’09

$28,583

U.S. AUTO SALES

million vehicles

17 million

Westlake Legal Group 0104-biz-webAUTO-Artboard_3 Low Rates, Cheap Gas and Deeper Debt Sustain Car Buying Boom United States Economy Prices (Fares, Fees and Rates) Inflation (Economics) Credit and Debt Consumer Behavior Automobiles Automobile Financing

AVERAGE U.S. AUTO PRICE*

U.S. AUTO SALES

million vehicles

’19

$37,183

17 million

Inflation-adjusted

’09

$28,583

*Average transaction price for new vehicles.

Source: Edmunds

By The New York Times

At the same time, the average new vehicle sold for $37,183, according to Edmunds. That represents an increase of 30 percent since 2009, a period in which overall consumer prices rose 20 percent. Much of the rise stems from increasing sales of trucks and larger vehicles, which sell for higher prices than cars. Many new cars also include elaborate technology like large touch screens, radar and other advanced safety systems, adding to the cost.

The shift to trucks, which generate more profit than cars, has powered General Motors and Fiat Chrysler in barely a decade from bankruptcy to near-record financial results. Ford’s profit has been less stellar as it pushes to reorganize. Rivals that have traditionally been stronger in compacts and sedans — like Toyota and Honda — have also had bottom-line difficulties in North America, although they continue to make money.

Fiat Chrysler cashed in last year on the demand for pickups, with sales of its Ram jumping 18 percent to more than 633,000. That made it the nation’s second-best selling vehicle after the Ford F-150 pickup, surpassing the Chevrolet Silverado from General Motors. (G.M.’s overall sales of full-size pickups still outpace the Ram, thanks to the Sierra sold by its GMC brand.)

Another winner was Tesla. Though electric cars made up less than 3 percent of overall car sales, Tesla dominated the category, and reported Friday that its worldwide deliveries were up 50 percent for the year. It did not break out sales in the United States.

Among the few companies to suffer significant declines were Mazda and Nissan, both of which have been slow to expand the range of their S.U.V.s. Mazda’s 2019 sales in the United States fell 7 percent, and Nissan’s were down 10 percent.

Auto executives remain confident about the industry outlook, yet mindful that a slump will come at some point.

“I feel positive about the market in 2020,” said Mike Manley, chief executive of Fiat Chrysler. “It’s very difficult to tell exactly because it’s an election year and you never know what’s going to happen.”

Mr. Manley said he did not expect a huge downturn like the one that hit the industry in 2008 and 2009. “But the reality is, the market is cyclical,” he said. “At some stage, the industry is going to drop off on its own.”

Most analysts see auto sales slipping only slightly in 2020, to a range of roughly 16.5 million to 16.9 million vehicles. “With the overall strength in the economy, with full employment, you’ve got consumer confidence at an all-time high,” said Jack Hollis, group vice president and general manager of Toyota in North America.

In addition, the three big American automakers bought four years of labor peace in the fall with new union contracts, though at the cost of a 40-day strike against General Motors.

Nevertheless, the industry still faces some risks. The Trump administration’s trade war with China remains unresolved. And the rising tensions between the United States and Iran are a reminder of the potential volatility of oil prices.

The new trade deal by the United States, Mexico and Canada is likely to increase domestic production and auto employment slightly and cause automakers to think hard before adding new plants in Mexico. “The question is whether it raises prices, and if that hits demand,” Mr. Wakefield said.

One worry is whether the steady rise in prices is sustainable, along with the increasing debt that owners have taken on to buy those more expensive cars.

More than one-third of Americans now have auto loans, up from 20 percent in 1999, according to the Federal Reserve Bank of New York. The share of consumer debt going to auto loans climbed to 9.4 percent in the third quarter of 2019, compared with 6 percent in the same period 10 years ago.

Many consumers are dealing with the higher prices by borrowing over longer terms. Auto loans approved in December had an average term of 69 months, compared with 62 months a decade earlier, Edmunds found.

That has helped keep monthly car payments from climbing as fast as sales prices. Still, those payments for loans generated in December averaged $577, up from $499 in 2014.

“That’s really the number to watch,” Mr. Wakefield of AlixPartners said, and so far the consumer can handle it.

For Mr. Manley’s company, Fiat Chrysler, consumer concerns about affordability have paid off. Last year, it introduced a brawnier Ram pickup available with a large touch screen and other advanced technologies. But Fiat Chrysler has continued making a more basic version, which can sell for $6,000 to $8,000 less than competing models. “We have a truck that is a great value,” Mr. Manley said.

Whatever the value, though, the cost is pushing some buyers away from new cars.

Last August, when Pete Krupsky went to look to replace his high-mileage Honda Civic, he headed straight to his dealer’s used-car lot. “I didn’t want a new car because I can’t afford the $25,000 or whatever the price is,” said Mr. Krupsky, a hockey play-by-play announcer in Rosewood, Mich.

He found a 2017 Honda Accord with 19,000 on its odometer — for $18,000. “It’s the most luxurious car I’ve ever had,” he added.

Susan Beachy contributed research.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Low Rates, Cheap Gas and Deeper Debt Sustain Car Buying Boom

The auto industry has been on a roll for a decade, and its resurgence shows few signs of coming to a halt — at least for now.

Strong employment, low interest rates and robust consumer confidence combined last year to extend a record run of auto sales.

Americans are also continuing to buy ever bigger cars, at prices escalating faster than the overall inflation rate. And they are taking on more debt to do so.

Nationwide, automakers sold more than 17 million new cars and light trucks in 2019, the market-research firm Edmunds estimated Friday. It was the fifth straight year of sales exceeding that figure, a distinction never achieved before.

Some automakers, notably Ford, have yet to report their final figures for the year. When they do, the total is likely to be slightly below the 17.3 million vehicles sold in 2018.

“We are past the peak,” said Mark Wakefield, a managing director at AlixPartners, a consulting firm with a large automotive practice. “But we are better off than we thought we would be going into 2019,” he added, largely because of interest rate cuts by the Federal Reserve.

Low fuel prices have also helped. The average retail price of regular gasoline was at $2.57 this week and has not been above $3 in more than five years, according to the Energy Information Administration.

That helps explain why consumers continued gravitating toward pickup trucks, sport utility vehicles and other roomy models, offsetting another steep fall in sales of sedans and compacts. Nearly two out of every three new models purchased last year were classified as light trucks — which includes minivans and even some small, S.U.V.-shaped cars.

Better Sales, Bigger Prices

Despite a steady increase in the average sales price, auto sales have topped 17 million for five years in a row.

Westlake Legal Group 0104-biz-webAUTO-Artboard_2 Low Rates, Cheap Gas and Deeper Debt Sustain Car Buying Boom United States Economy Prices (Fares, Fees and Rates) Inflation (Economics) Credit and Debt Consumer Behavior Automobiles Automobile Financing

AVERAGE U.S. AUTO PRICE*

’19

$37,183

Inflation-adjusted

’09

$28,583

U.S. AUTO SALES

million vehicles

17 million

Westlake Legal Group 0104-biz-webAUTO-Artboard_3 Low Rates, Cheap Gas and Deeper Debt Sustain Car Buying Boom United States Economy Prices (Fares, Fees and Rates) Inflation (Economics) Credit and Debt Consumer Behavior Automobiles Automobile Financing

AVERAGE U.S. AUTO PRICE*

U.S. AUTO SALES

million vehicles

’19

$37,183

17 million

Inflation-adjusted

’09

$28,583

*Average transaction price for new vehicles.

Source: Edmunds

By The New York Times

At the same time, the average new vehicle sold for $37,183, according to Edmunds. That represents an increase of 30 percent since 2009, a period in which overall consumer prices rose 20 percent. Much of the rise stems from increasing sales of trucks and larger vehicles, which sell for higher prices than cars. Many new cars also include elaborate technology like large touch screens, radar and other advanced safety systems, adding to the cost.

The shift to trucks, which generate more profit than cars, has powered General Motors and Fiat Chrysler in barely a decade from bankruptcy to near-record financial results. Ford’s profit has been less stellar as it pushes to reorganize. Rivals that have traditionally been stronger in compacts and sedans — like Toyota and Honda — have also had bottom-line difficulties in North America, although they continue to make money.

Fiat Chrysler cashed in last year on the demand for pickups, with sales of its Ram jumping 18 percent to more than 633,000. That made it the nation’s second-best selling vehicle after the Ford F-150 pickup, surpassing the Chevrolet Silverado from General Motors. (G.M.’s overall sales of full-size pickups still outpace the Ram, thanks to the Sierra sold by its GMC brand.)

Another winner was Tesla. Though electric cars made up less than 3 percent of overall car sales, Tesla dominated the category, and reported Friday that its worldwide deliveries were up 50 percent for the year. It did not break out sales in the United States.

Among the few companies to suffer significant declines were Mazda and Nissan, both of which have been slow to expand the range of their S.U.V.s. Mazda’s 2019 sales in the United States fell 7 percent, and Nissan’s were down 10 percent.

Auto executives remain confident about the industry outlook, yet mindful that a slump will come at some point.

“I feel positive about the market in 2020,” said Mike Manley, chief executive of Fiat Chrysler. “It’s very difficult to tell exactly because it’s an election year and you never know what’s going to happen.”

Mr. Manley said he did not expect a huge downturn like the one that hit the industry in 2008 and 2009. “But the reality is, the market is cyclical,” he said. “At some stage, the industry is going to drop off on its own.”

Most analysts see auto sales slipping only slightly in 2020, to a range of roughly 16.5 million to 16.9 million vehicles. “With the overall strength in the economy, with full employment, you’ve got consumer confidence at an all-time high,” said Jack Hollis, group vice president and general manager of Toyota in North America.

In addition, the three big American automakers bought four years of labor peace in the fall with new union contracts, though at the cost of a 40-day strike against General Motors.

Nevertheless, the industry still faces some risks. The Trump administration’s trade war with China remains unresolved. And the rising tensions between the United States and Iran are a reminder of the potential volatility of oil prices.

The new trade deal by the United States, Mexico and Canada is likely to increase domestic production and auto employment slightly and cause automakers to think hard before adding new plants in Mexico. “The question is whether it raises prices, and if that hits demand,” Mr. Wakefield said.

One worry is whether the steady rise in prices is sustainable, along with the increasing debt that owners have taken on to buy those more expensive cars.

More than one-third of Americans now have auto loans, up from 20 percent in 1999, according to the Federal Reserve Bank of New York. The share of consumer debt going to auto loans climbed to 9.4 percent in the third quarter of 2019, compared with 6 percent in the same period 10 years ago.

Many consumers are dealing with the higher prices by borrowing over longer terms. Auto loans approved in December had an average term of 69 months, compared with 62 months a decade earlier, Edmunds found.

That has helped keep monthly car payments from climbing as fast as sales prices. Still, those payments for loans generated in December averaged $577, up from $499 in 2014.

“That’s really the number to watch,” Mr. Wakefield of AlixPartners said, and so far the consumer can handle it.

For Mr. Manley’s company, Fiat Chrysler, consumer concerns about affordability have paid off. Last year, it introduced a brawnier Ram pickup available with a large touch screen and other advanced technologies. But Fiat Chrysler has continued making a more basic version, which can sell for $6,000 to $8,000 less than competing models. “We have a truck that is a great value,” Mr. Manley said.

Whatever the value, though, the cost is pushing some buyers away from new cars.

Last August, when Pete Krupsky went to look to replace his high-mileage Honda Civic, he headed straight to his dealer’s used-car lot. “I didn’t want a new car because I can’t afford the $25,000 or whatever the price is,” said Mr. Krupsky, a hockey play-by-play announcer in Rosewood, Mich.

He found a 2017 Honda Accord with 19,000 on its odometer — for $18,000. “It’s the most luxurious car I’ve ever had,” he added.

Susan Beachy contributed research.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Car Sales Remain Strong as Buyers Absorb Higher Prices

The auto industry has been on a roll for a decade, and its resurgence shows few signs of coming to a halt — at least for now.

Strong employment, low interest rates and robust consumer confidence combined last year to extend a record run of auto sales.

Americans are also continuing to buy ever bigger cars, at prices escalating faster than the overall inflation rate. And they are taking on more debt to do so.

Nationwide, automakers sold more than 17 million new cars and light trucks in 2019, the market-research firm Edmunds estimated Friday. It was the fifth straight year of sales exceeding that figure, a distinction never achieved before.

Some automakers, notably Ford, have yet to report their final figures for the year. When they do, the total is likely to be slightly below the 17.3 million vehicles sold in 2018.

“We are past the peak,” said Mark Wakefield, a managing director at AlixPartners, a consulting firm with a large automotive practice. “But we are better off than we thought we would be going into 2019,” he added, largely because of interest rate cuts by the Federal Reserve.

Low fuel prices have also helped. The average retail price of regular gasoline was at $2.57 this week and has not been above $3 in more than five years, according to the Energy Information Administration.

That helps explain why consumers continued gravitating toward pickup trucks, sport utility vehicles and other roomy models, offsetting another steep fall in sales of sedans and compacts. Nearly two out of every three new models purchased last year were classified as light trucks — which includes minivans and even some small, S.U.V.-shaped cars.

Better Sales, Bigger Prices

Despite a steady increase in the average sales price, auto sales have topped 17 million for five years in a row.

Westlake Legal Group 0104-biz-webAUTO-Artboard_2 Car Sales Remain Strong as Buyers Absorb Higher Prices United States Economy Prices (Fares, Fees and Rates) Inflation (Economics) Credit and Debt Consumer Behavior Automobiles Automobile Financing

AVERAGE U.S. AUTO PRICE*

’19

$37,183

Inflation-adjusted

’09

$28,583

U.S. AUTO SALES

million vehicles

17 million

Westlake Legal Group 0104-biz-webAUTO-Artboard_3 Car Sales Remain Strong as Buyers Absorb Higher Prices United States Economy Prices (Fares, Fees and Rates) Inflation (Economics) Credit and Debt Consumer Behavior Automobiles Automobile Financing

AVERAGE U.S. AUTO PRICE*

U.S. AUTO SALES

million vehicles

’19

$37,183

17 million

Inflation-adjusted

’09

$28,583

*Average transaction price for new vehicles.

Source: Edmunds

By The New York Times

At the same time, the average new vehicle sold for $37,183, according to Edmunds. That represents an increase of 30 percent since 2009, a period in which overall consumer prices rose 20 percent. Much of the rise stems from increasing sales of trucks and larger vehicles, which sell for higher prices than cars. Many new cars also include elaborate technology like large touch screens, radar and other advanced safety systems, adding to the cost.

The shift to trucks, which generate more profit than cars, has powered General Motors and Fiat Chrysler in barely a decade from bankruptcy to near-record financial results. Ford’s profit has been less stellar as it pushes to reorganize. Rivals that have traditionally been stronger in compacts and sedans — like Toyota and Honda — have also had bottom-line difficulties in North America, although they continue to make money.

Fiat Chrysler cashed in last year on the demand for pickups, with sales of its Ram jumping 18 percent to more than 633,000. That made it the nation’s second-best selling vehicle after the Ford F-150 pickup, surpassing the Chevrolet Silverado from General Motors. (G.M.’s overall sales of full-size pickups still outpace the Ram, thanks to the Sierra sold by its GMC brand.)

Another winner was Tesla. Though electric cars made up less than 3 percent of overall car sales, Tesla dominated the category, and reported Friday that its worldwide deliveries were up 50 percent for the year. It did not break out sales in the United States.

Among the few companies to suffer significant declines were Mazda and Nissan, both of which have been slow to expand the range of their S.U.V.s. Mazda’s 2019 sales in the United States fell 7 percent, and Nissan’s were down 10 percent.

Auto executives remain confident about the industry outlook, yet mindful that a slump will come at some point.

“I feel positive about the market in 2020,” said Mike Manley, chief executive of Fiat Chrysler. “It’s very difficult to tell exactly because it’s an election year and you never know what’s going to happen.”

Mr. Manley said he did not expect a huge downturn like the one that hit the industry in 2008 and 2009. “But the reality is, the market is cyclical,” he said. “At some stage, the industry is going to drop off on its own.”

Most analysts see auto sales slipping only slightly in 2020, to a range of roughly 16.5 million to 16.9 million vehicles. “With the overall strength in the economy, with full employment, you’ve got consumer confidence at an all-time high,” said Jack Hollis, group vice president and general manager of Toyota in North America.

In addition, the three big American automakers bought four years of labor peace in the fall with new union contracts, though at the cost of a 40-day strike against General Motors.

Nevertheless, the industry still faces some risks. The Trump administration’s trade war with China remains unresolved. And the rising tensions between the United States and Iran are a reminder of the potential volatility of oil prices.

The new trade deal by the United States, Mexico and Canada is likely to increase domestic production and auto employment slightly and cause automakers to think hard before adding new plants in Mexico. “The question is whether it raises prices, and if that hits demand,” Mr. Wakefield said.

One worry is whether the steady rise in prices is sustainable, along with the increasing debt that owners have taken on to buy those more expensive cars.

More than one-third of Americans now have auto loans, up from 20 percent in 1999, according to the Federal Reserve Bank of New York. The share of consumer debt going to auto loans climbed to 9.4 percent in the third quarter of 2019, compared with 6 percent in the same period 10 years ago.

Many consumers are dealing with the higher prices by borrowing over longer terms. Auto loans approved in December had an average term of 69 months, compared with 62 months a decade earlier, Edmunds found.

That has helped keep monthly car payments from climbing as fast as sales prices. Still, those payments for loans generated in December averaged $577, up from $499 in 2014.

“That’s really the number to watch,” Mr. Wakefield of AlixPartners said, and so far the consumer can handle it.

For Mr. Manley’s company, Fiat Chrysler, consumer concerns about affordability have paid off. Last year, it introduced a brawnier Ram pickup available with a large touch screen and other advanced technologies. But Fiat Chrysler has continued making a more basic version, which can sell for $6,000 to $8,000 less than competing models. “We have a truck that is a great value,” Mr. Manley said.

Whatever the value, though, the cost is pushing some buyers away from new cars.

Last August, when Pete Krupsky went to look to replace his high-mileage Honda Civic, he headed straight to his dealer’s used-car lot. “I didn’t want a new car because I can’t afford the $25,000 or whatever the price is,” said Mr. Krupsky, a hockey play-by-play announcer in Rosewood, Mich.

He found a 2017 Honda Accord with 19,000 on its odometer — for $18,000. “It’s the most luxurious car I’ve ever had,” he added.

Susan Beachy contributed research.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com