The record crowds thronging auto shows around North America could indicate that consumers who lived through mandatory government COVID lockdowns have changed their attitudes about financial security vs. current consumption forever.
A record crowd of potential buyers at the Canadian International Auto Show in Toronto, February 19, 2023.
And if that’s true, conflicting data about where the global economy is headed may start to make a bit more sense: Aggressive consumer spending could remain a significant heat source for inflation even under painful economic circumstances that would have tightly closed previous generations’ wallets. 2022’s soaring interest rates and capital market calamities – along with a withdrawal of significant COVID-era government largesse – were expected to cool inflation and potentially lead to a “hard landing” recession.
But in the same way people who lived through the Great Depression developed a habit for uncomplaining thrift, it seems that consumers have learned two important lessons from the unprecedented national and local government COVID clampdowns:
1) What you have can be taken away at any time by government diktat, and
2) If life is that short and unpredictable, delaying gratification through work and sacrifice makes a whole lot less sense than it used to.
Record crowds have been thronging auto shows in Detroit, Chicago, and Washington DC in recent weeks and were acting more like hungry buyers than reserved browsers. Clipboard-toting automaker reps at Toronto’s Canadian International Auto Show seemed under siege from crowds so thick the escalators shut down in protest, and the overheard snippets of dialogue were about prices and availability for ordering.
The crowds at the Canadian International Auto Show were so large that the escalators shut down under the onslaught.
That seems counterintuitive, given the huge uncertainties confronting consumers right now: Will inflation abate? Will interest rates keep rising? Will homes drop sharply in value after the sharp pandemic run-ups? Will retirement savings be eroded by rising prices? And is world war on the horizon with China and Russia?
Consumers don’t seem to care. They want a crack at the electric SUV – or for that matter, the giant Cummins turbodiesel-powered Dodge Ram truck. And sure enough, data from the St. Louis branch of the U.S. Federal Reserve Bank shows auto sales ramping up again after a short pullback in mid-2022.
Can a direct line be drawn between lockdowns and ever-more aggressive consumer buying behavior? No. There are too many variables and too much dirty data. But there’s that stubborn fact of what the eyes and ears detect after attending one of these oversold car shows: There’s an apparent hunger by consumers to get what they want, now -- household debt levels, interest rates, and geopolitical circumstances be damned.
Conclusions? Several:
First, monetary policy-setters at the U.S. Fed and the Bank of Canada might not be quite as powerful as they wish they were, and they can in part thank their government brethren in the public health branches for it.
Second, we’re on the economic equivalent of Mr. Toad’s Wild Ride – and like that old Disneyland classic, we’re not in control of the steering. The global economy’s brakes aren’t working so well right now, leaving us speeding unpredictably down the road without much control.
Third, and most importantly, unprecedented governmental overreach can set in motion forces, events, and behaviors that can redound for generations. World-changing policy decisions require a vastly higher bar and a significantly greater duty of care than they were given by governmental officials in the COVID pandemic.
When capricious policy actions can instantly take even the most critical personal freedoms away, human nature shifts to living in the moment. Decisionmaking becomes short-term in nature as unpredictability rises.
Consumers will always act in their economic self-interest. Condescending policymakers who think they’re stronger and smarter than their subjects will be forced to learn and re-learn that they’re not.
