The US National Automobile Dealers Association (NADA) forecasts 16.94 million new cars and light trucks will be purchased or leased in the US in 2015.

“Rising employment and wages, continued low interest rates and lower gasoline prices all signal an increase in new light-vehicle sales in 2015,” NADA Chief Economist Steven Szakaly said at a press briefing ahead of the NADA /JD Power Western Automotive Conference in Los Angeles.

“The economy will continue to build on the solid growth established in 2014, and we also expect the fundamental conditions to improve in the year ahead,” he added. “Gross domestic product will grow at 3.1 percent in 2015, with the potential for growth to exceed our forecast.”

Szakaly added that new car sales rising above 17 million units in 2015 would require a ramp up in incentives and an increase in new car purchases by millennial shoppers above what has occurred over the past two years.

With nearly seven weeks remaining this year, NADA’s original sales forecast of 16.4 million new cars and light trucks for 2014 remains on target with an expected healthy finish in sales in November and December. GDP will grow at 2.1 percent in 2014, with inflation remaining well tamed as the year ends, Szakaly said.

Employment and wages

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On the positive side, NADA says employment will continue to increase. “Growth is now well above 200,000 jobs per month, and our forecast for employment growth is 242,000 new jobs on average per month in 2015,” Szakaly said.

“This improvement in the labour market should also benefit wages and incomes. This growth will be moderate, with disposable income rising by 2.5 percent in 2015,” he said. “Conversely, corporate profits are expected to increase by a healthy rate of 6.7 percent.”

Interest rates and the Fed

NADA says its 2015 forecast is predicated on interest rates remaining low. “The Federal Reserve is expected to raise interest rates in 2015, but the rate rise will be small,” Szakaly said. “The Fed policy rate will move to 1 percent by October 2015, with further movements in rates expected during the second half of 2016.”

In addition, NADA expects long-term rates on auto loans to rise in 2015, though not sufficiently to dampen its sales outlook. NADA expects rates on auto loans to rise by about 125 to 150 basis points by Dec. 31, 2015. This rise will be steady over the course of the year, Szakaly maintains.

Inflation stays low

While talk of wage increases often leads to discussions about the possibility of inflation, Szakaly says there are other factors that will counter any effect from rising wages. For example, “declining demand from emerging markets for commodities and raw materials, especially China, will ease pressure on prices for US companies,” he said. “In addition, a stronger US dollar will further dampen inflationary pressure by maintaining downward momentum on import prices for goods and services.”

Gasoline prices stay down

Another positive: oil and gasoline prices are expected to remain weak through 2015 because of the recent market share war that began in Saudi Arabia, Szakaly said. NADA’s current forecast is for West Texas Intermediate (WTI) crude to average $71-$73 per barrel in the first half of 2015, rising to an average of $83 for the second half of 2015.

“Lower oil prices, which translate into lower prices at the gas pump for consumers, increases household spending on other goods and services, resulting in higher growth,” Szakaly said. “If oil and gasoline prices remain low through 2015, we could easily see consumers return in even greater numbers to the light vehicle market during the second half of 2015.”

Forecast risks

However, Szakaly cautioned that there are a few global macroeconomic concerns to the GDP forecast in the US, such as conditions in China and Europe, but they will not likely derail US economic growth.

In particular, growth in China will slow to an average GDP rate of 6.4 percent in 2015 and 5.9 percent in 2016. “This has the potential to harm US exports and hurt profits at companies that are dependent on the market in China,” he said.

In addition, growth in the Eurozone is expected to be weak with GDP likely to grow at only 1.4 percent in 2015. “This may further dampen demand for U.S. goods and services,” Szakaly said.

In the US, rising interest rates could cause a slowdown in the housing market. “In particular, existing home sales are expected to remain sensitive to interest rate rises, more so than new vehicles, and could easily dampen activity in new home construction and reduce sales of light trucks,” he added.