»The Daily Reckoning by Bill Borner

What the media did not tell you about the economy this month
17 DECEMBER 2015

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An old adage in journalism goes: "if it bleeds, it leads". But this doesn't seem to apply to bad economic news. Allow me to elaborate. Let's start with new car sales. New car sales are a reliable economic indicator which tell you whether the economy is starting to pick up. People buy a car only when they feel certain about their job prospects. Further, once car sales pick up, sale of steel, tyres, auto-components, glass etc., also starts to pick up. New car sales have a multiplier effect and hence, are a good indicator of economic growth. At least that's how one would look at things theoretically.

The jump in the new car sales numbers was on the front page of the Mumbai edition of the leading pink paper where it was reported that sales saw a double digit growth in November 2015. Car sales in November 2015 went by 11.4% to 2,36,664 units, in comparison to November 2014. That is indeed a good jump and does indicate at some level that the consumer sentiment is improving.

But we need to take into account the fact that Diwali this time was in November and that always pushes up car sales. The December 2015 new car sales number will be a proper indicator of whether car sales have actually recovered or not.

Now contrast this with merchandise exports (goods exports) which fell by 24.4% to $20 billion in November 2015, in comparison to the same period last year. Over and above this, the exports have been falling for the last twelve months. This piece of news was buried in the inside pages of the Mumbai edition of the leading pink paper. Exports are a very important economic indicator. Countries which have driven their masses out of poverty have done so by having a vibrant export sector.

Getting back to car sales. It is important to ask how important car sales are in the Indian context. As per the 2011 Census, 4.7% of the households owned cars in India. At the same time 21% of households owned two-wheelers (scooters, motorcycles and mopeds (yes, they still get made and sold).


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This tells us very clearly that two-wheeler sales are a better economic indicator in the Indian context than car sales. Many more people own two-wheelers than cars. Further, many more people are likely to buy two wheelers than cars given the fact that two-wheelers are more affordable.

And how are two-wheeler sales doing? Not too well. Two wheeler sales in the month of November 2015 went up just 1.47% to 13,20,561 units, in comparison to November 2014. The motorcycle sales went up by 1.57% to 8,66,705 units. Scooter sales went up by 2.45% to 3,96,024 units. And moped sales fell by 6.16% to 57,832 units.

In fact, the increase in two-wheeler sales in November 2015 in comparison to November 2014 stood at just 19,130 units. Whereas the increase in car sales was at 24,226 units. The increase in car sales was greater than two wheeler sales. And this is indeed very surprising, given that total two wheeler sales in November 2015, were 5.6 times the car sales.

You won't find this very important point having been made in the pink papers. What does this tell us? It tells us that a large part of India is still not comfortable making what is for them an expensive purchase. It also tells us that the consumer demand at the level of the upper middle class (for the lack of a better term), which can afford to buy a car, is much better than it is for others.

The question is why is did the business media miss out on this? A possible explanation is that most of the business media these days is run out of Delhi. And in Delhi everyone owns a car, at least that's the impression you are likely to get if you work in the media in Delhi. So car sales are important, two wheeler sales are not. But that is really not the case even in Delhi.

As TN Ninan writes in The Turn of the Tortoise-The Challenge and Promise of India's Future: "In Delhi, according to data collected for the 2011 Census, 20.7 per cent owned cars and 38.9 per cent owned two-wheelers...In a conscious middle-class entity like Gurgaon, neighbouring Delhi...the credit rating agency CRISIL assessed that 30 per cent of households owned cars [and] 38.9 per cent owned two-wheelers."

Long story short-two wheeler sales are a better economic indicator than car sales. What this also tells us is that any piece of positive news will be played up and highlighted on the front page whereas any piece of negative news will be buried in the inside pages. Why does this happen? Why did the media almost bury the news of very low growth in two-wheeler sales?

Satyajit Das has an explanation for this in his terrific new book The Age of Stagnation-Why Perpetual Growth is Unattainable and the Global Economy is in Peril: "Bad news is bad for business. The media and commentariat, for the most part, accentuate the positive. Facts, they argue, are too depressing. The priority is to maintain the appearance of normality, to engender confidence."

Also, given that a business newspaper (or for that matter any newspaper) makes money from advertisements and not the price the buyers pay to buy a newspaper, this isn't surprising. Of course, you dear reader, need not worry, as long as you keep reading The Daily Reckoning.

Disclosure: Satyajit Das wrote the foreword to my book Easy Money: Evolution of Money from Robinson Crusoe to the First World War

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