The favorite toy of many little (and big) boys is a shiny, new pick-up truck. Pick-up trucks are used for both work and play, by farmers, electricians, carpenters, and weekend warriors. A new 2013 Ford F-150 will run a big boy a minimum of $25,000, and as much as $50,000. Because of this, new registrations of pick-up trucks can be a good indicator of blue-collar job stability and growth, and disposable cash levels.
Dr. Bruce Yandle, Distinguished Adjunct Professor of Economics at the Mercatus Center of George Mason University has created a "Pick-up Truck Economic Indicator." In 1998 the number of light trucks sold nationally became greater than the number of cars sold, and has remained so ever since. Beginning in May of 2008, at the start of the 2008 recession both car and truck sales fell drastically. However according to Dr. Yandle, "pick-ups are (again) outpacing autos." His analysis, reinforced by the observation of more and newer pick-ups at gas stations, is that "America is building again. Things are getting better."
As a rural, mostly agricultural state, pick-up trucks are an integral part of the Iowa economy, but frugal farmers and blue-collar workers are typically not going to buy a new truck unless they're confident of their ability to pay for it. So new registrations of pick-up trucks may be a good indicator of consumer confidence and long-term economic growth in Iowa, as well as nationally.
The Iowa Workforce Development News and Trends Webpage list the Iowa vehicle new registrations, a good proxy for new vehicle purchases. It also provides the raw data back to January 2009 and current to May 2013.
Since 2009 there are only a few months where Iowa truck registrations are greater than car registrations, different from the national experience. More people typically register (after buying) trucks in December and January, presumably to take advantage of year end vehicle sales and after the fall crop sales. The "cash for clunkers" program in July-August 2009 apparently drove many new car sales, as in these months the truck sales were as low as 48 percent of car sales. Tax refunds and new model year introductions also result in regular spikes in new registrations in May and August.
However, when the trend line is added to the chart, it is apparent that truck registrations are in fact climbing at a faster rate than car registrations, and if the trend continues, truck registrations in Iowa should outpace car registrations by early 2014.
At the same time, Iowa farmland prices continue to rise though many are concerned about a potential "bubble," based on some sales of $20,000 per acre. According to Iowa State University, the market price of "average" Iowa farm land was about $8,300 in 2012. One investor's newsletter estimates that this price is reasonable, supported by the current levels of corn price and per acre yield, and current interest rates, and is not necessarily a "bubble." If interest rates remain low for "the long haul" and the price per bushel of corn remains high, then the average price per acre may jump up to $11,000 or $15,500. On the other hand, if corn prices drop and interest rates rise, the price may fall back to the $4,500 per acre of 2009. Unfortunately corn prices, interest rates, and weather are difficult to predict or control.
If current economic trends continue many "boys" will have large, shiny, expensive new trucks in the driveway this Christmas but with the market uncertainty caused by the Federal Reserve, international trade, and lack of rain, they may have join their son in settling for one under the tree!
The views expressed in this column are those of the author and not necessarily those of the Public Interest Institute. They are brought to you in the interest of a better informed citizenry.
Deborah D. Thornton is a research analyst for the Public Interest Institute in Mount Pleasant.