Cox Sizes up Biden Economic Agenda

By Jeffrey Bellant January 20, 2021
President Joe Biden, along with Senator Robert Menendez and Senator Frank Lautenberg President Joe Biden, along with Senator Robert Menendez and Senator Frank Lautenberg

Cox Automotive’s chief economist expects a bigger stimulus package, increased  infrastructure spending, regulation and tax reform as key priorities in the Biden administration.

Jonathan Smoke, Cox Automotive chief economist, described the incoming government as having a “light, blue hue” during this month’s Cox Automotive Insights presentation.

Jonathan Smoke

He cites an expected stimulus in the first quarter higher than the $900 billion package passed in December.

“It’s also likely that we’ll see infrastructure spending that could play a big role in electric vehicle charger investment and perhaps more related to transportation,” Smoke said.

He expects spending and economic growth will increase in 2021.

“Regulation is also likely to grow,” Smoke said. “That has two elements related to automotive: the environment and consumer financial protection.”

The first part is related to electrification, an area that auto manufacturers are championing.

“The latter could have consequences that keep credit tight and, together with inflation, make affordability even more challenging,” Smoke said.

The short term looks “mainly positive,” he said, though down the road more challenges may emerge.

The final factor, taxes, is not an immediate priority, is more unknown.

“A key part of Biden’s platform was tax reform and this has implications for corporate taxes, as well as taxes on consumers in the luxury segment,” Smoke said.

He predicts that tax reform likely “won’t spoil the party in 2021 but will be a wildcard going forward.”

Smoke said the economy is doing better, though it won’t be fully recovered until the pandemic is controlled.

The U.S. has experienced three waves of the pandemic, with the most recent being the worst, Smoke said.

Vaccine rollout is picking up speed, promising a brighter 2021

He described the most recent COVID-19 map as “bleak” because of infections and hospitalizations. However, the arrival of vaccinations is expected to help.

The jobs recovery appears stalled in the fourth quarter, but we are still better off than we were in last spring, Smoke said

Consumer sentiment improved in December, especially since the last stimulus package was signed into law.

Two other economic factors include wages and buyer ability,

Smoke said wages are up, but part of that is that lower wage jobs have been more adversely affected by the stimulus.

“Disposable income year-over-year will continue to remain up because of stimulus and enhanced unemployment benefits, at least through March,” he said.

Other factors remain mostly positive. Credit continues to flow, although it has tightened for subprime borrowers.,

Interest rates remain low which benefits those with stronger credit, Snow said.

Cox Automotives’s  4th Quarter Dealer Sentiment Report shows that franchise dealers were more positive than a year ago, though it’s not true of independents.

Smoke added that the third and fourth quarters related to how franchise dealers described their profits were the strongest in the history of Cox’s data.

“Many dealers have told me they enjoyed some of their best months of their entire existence, thanks to larger gross margins and great efficiency,” Smoke said. “It’s amazing what a supply-constrained market and a shift toward digital can do for margins.”

 

 

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Last modified on Wednesday, 20 January 2021 17:06