If you had to point to one culprit holding back the US economy over the past 18 months, it would be the auto industry. Supply chain problems like the shortage of semiconductors have contributed to weak economic growth, anaemic productivity, rising prices and higher interest rates as the US Federal Reserve struggles to control inflation.
That deficit has affected the economy in all sorts of ways. Vehicle detracted 2% from real GDP growth in the third quarter of 2021 due to the sales slump, and by the third quarter of 2022 had yet to bounce back. The industry’s problems have hurt productivity growth due to the way productivity is calculated — vehicles that would sell for tens of thousands of dollars are not counted as output because they are sitting on factory floors waiting for chips that often do not cost very much.
All of those downstream effects mean that it is a big deal for the economy that production is finally normalising. Earlier in November we learnt that new vehicle sales in October jumped to 14.9-million from 13.5-million, the highest level since January. That is still well below the pre-pandemic normal, but it is huge for measures of output like GDP.
This would also be good news for productivity growth, which has been weak for a while. Faster economic growth without a corresponding pickup in the labour market means that productivity accounts for the difference.
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