Car dealer
Economists are concerned about the recession, with an average estimate of 45% of the likelihood that one will begin in the next 12 months, according to the Wall Street JournalThe latest survey. The Federal Reserve would certainly reduce interest rates if this has happened, like the chairman Jerome Powell's recent comments that data will advance the impending decisions of the FED.
The interest -sensitive business could wonder if a recession would actually help them by lowering interest rates. The animation of expenses in the interesting sensitive parts of the economy is a key element of monetary policy in a recession. However, the historical data are disappointing. The expenses decrease in recessions, also in interest -sensitive sectors. If you look at two important sectors in detail, it is clear that the planning of business support should rather focus on the downward risk of a recession than on the upward trend of falling interest rates.
This conclusion is promoted by investigating two branches: car sales, new home sales and private construction work.
Many of the country's recessions were triggered by rising interest rates when the Fed tried to combat inflation. This swings occurred in 1970, 1973-75, 1980 and 1981-82. In all of these cases, car sales and the sale of homes had decreased well before the recessions. In fact, the interesting sensitive sectors pulled out the economy in these burglaries. When the Fed lowered interest rates to combat these recessions, sales in both sectors were partially revived, but the recessions themselves harm the activity.
Two of the recent recessions offer better lessons. The car sale began at the end of 1989, shortly after the interest rates for this cycle had reached its peak. The turnover sagged more, even than the interest fell, and then again on the floor when the downturn fell into the past. The 1990 recession played a larger role than interest rates.
The economy went back to the recession in 2001, which was often due to the end of the Y2K editions and the DOT COM bust. The car turnover was approximately flat, although the Fed lowered its benchmark interest rate from 6.5% to 1.75%. This enabled car manufacturers to offer financial financing of zero percent (the difference between market interests and zero). In this recession there was no real decline in sales, possibly due to this sharp interest rate reduction. But car dealers certainly did not increase sales of lower interest rates.
New sales in these two recessions improved with falling interest rates, but the recession still had an impact. The data show that sales at home would have been better if the recession had not occurred.
The “big recession” from 2008-09 was very serious. The interest was reduced to almost zero percent (for short terms). However, new automotive sales took four years to regain their preparatory level, even if the interest rates were about zero.
The turnover of homes in this era tells no recession and interest. Rather, the boom of the new building flooded the market with excess living space in the years before the recession. It took years for new home sales to recover. In fact, despite 20 years, they have not yet regained the climax of 2005.
The latest recession occurred in pandemic. The economy reached its peak in February 2020 and then hit her trough only two months later. The car sales went back sharply in the castle days and then recovered with some make-up sales. The Fed lowered interest rates in pandemic, but sales remained low for two years. The disorders of the supply chain, including computer chip shortages, can explain a certain restriction of sales.
The new turnover with home-ups rose with low interest rates and rose well above the pre-pandemic trend line. There is no doubt that low financing costs helped sales. Many apartment tenants who wanted to buy a house calculated their credit costs at low interest rates and went shopping well before they would otherwise have been the old interest rates.
Despite the post -pandemic sales rally, the weight of the evidence is that recessions trumped low interest rates. Business plans should certainly take into account the mitigating effects of lower interest rates during the recessions, but there is no justification for the expectation of higher sales, not even in the most interesting parts of the economy.