I'm hearing people say this a lot, particularly in reference to the sale of new homes and cars. Their using it as a sign of a market bottom and a good sign that growth will soon return. I'm not as sure. Here's how it works.
The assumption is that new homes will eventually need to be built to accommodate population growth and new cars will be sold to replace old stock. However, what if there is a surge in multi-generational housing (there is) or people start to drive much less (they are) or keep their cars until they drop (most people I know are planning this). If that occurs, you have to revise the replacement level assumption to a far lower level than before the start of the downturn. What's that level? I suspect it is well below current sales levels, which means that there is much more downside movement possible.
Even if demand picks up in some areas, it takes credit to fill the pipe with goods to buy and there is no credit. It's hard to start the economy back up once it stops.
Posted by: Dave Winer | February 20, 2009 at 05:30 PM
Concur!
Posted by: John Robb | February 20, 2009 at 05:58 PM
I think it would be hard to keep cars like the old days becuase no one can really afford the equipment to fix them on their own.
Someone should design a car that has little or no computers and is made as simple as possible. The car would come with a manual and bag of tools. The company would sell the spare parts and it would be simple enough for the average person to make most repairs.
There would be only one or two models and all the parts would be standardized. People could help their friends and trade parts with each other.
Posted by: Seerov | February 21, 2009 at 03:46 AM
Seems to me that the best reference for "replacement level" is to look back at that same old depression: I see people with those 3,500 square foot homes taking in lodgers to try to pay the mortgage. I see much more car-pooling.
There goes the impact of the population increases...
Posted by: Dan Lyke | February 21, 2009 at 10:26 AM