March retail sales figures worse than they appear

March retail sales rose 0.9 percent, the healthiest monthly gain in a year. But the gain was below economists’ expectations and driven in large part, by auto sales, which increased 2.7 percent. Back out the spike in auto sales, and the March increase dives to .5 percent.

Beyond the headlines, however, there’s a dimension to this news that gets little traction in the business media: the role the subprime auto loan market plays in boosting auto sales, while other retail sectors are still sluggish, at best.

The Trends Research Institute has for years tracked the growth of the subprime auto loan market and warned that this bubble will burst. The surge in March auto sales comes at a time when, according to the credit-tracking agency TransUnion, the average amount of an auto loan has increased sharply, from $14,700 to $17,400, in just five years.

Subprime auto loans are granted to drivers with credit scores in the mid-500s, if they have a FICO score at all. Sound familiar? It should because this is a trend now mirroring the housing bubble. As Credit.com recently reported: “… auto loans are also hot for a different reason, and many observers have begun uttering the dreaded ‘B-word’ about the market. Bubble.’ ”

TREND FORECAST: Two institute trend lines are reinforced in the March retail sales report:

• Most retail sectors are sluggish to flat, reflecting an economy with no genuine growth curve; one only propped up by cheap money and non-existent interest rates.
• The subprime auto loan bubble is going to pop.