Andrew Gordon says people who think a housing market recovery will spark a wider economic revival have got it the wrong way round. Until people stop losing their jobs and can afford to splash out on inexpensive items they’re not going to buy houses. Auto sales provide a better economic barometer. The sector is heading for its worse year since the early ’90s. Things are still looking glum…

This from Investor’s Daily Edge:

I’ve heard it a dozen times. The economic slowdown will end when the housing sector recovers.

The idea is that it was the housing crisis which kick-started the economy’s decline, and it’ll be housing which brings it back to life. A recovery in housing will give people confidence in the economy. And, just as importantly, it’ll enable people to take out equity loans again. That will give a big boost to spending.

But I see it the other way around. I believe that the housing sector crisis will end when the economy recovers. In other words, I see the revival of housing as a lagging indicator.

Before people start buying houses in increasing numbers, the job and household income numbers need to improve.

The retail numbers will also have to pick up. People who are reluctant to buy new clothes will also be reluctant to buy new houses.

People who can’t afford new cars won’t be buying houses. That’s why I’m keeping a close eye on auto sales. When auto sales pick up, it’ll be a bullish sign for the housing sector and the economy as a whole.

The auto sales numbers for August are in. And they’re not pretty. They’re down for the tenth straight month – dropping 15 percent. Truck sales (this is no surprise) fell 22 percent.

Among the six biggest automakers, only Nissan (NASDAQ:NSANY) increased sales - by an impressive 14 percent. But that was more than offset by Volvo’s downshifting sales (49 percent drop), Chrysler (34 percent), Ford (NYSE:F)(26 percent), General Motors (NYSE:GM) (20 percent), Toyota (NYSE:TM) (nine percent), and Honda (NYSE:HMC) (seven percent).

Daimler came closest to Nissan’s sales performance and it was still in negative territory, but by less than one percent.

Auto sales are headed for their worst year since the early 1990’s. And as long as they continue to head down, so will the economy.

Source: Auto Sales Still Falling