Posted by Joseph Y. Calhoun, III

Auto sales fell of a cliff in September after the cash for clunkers program expired…as expected. Less expected was the rebound in sales in October (via WSJ):

At a seasonally adjusted annual rate, there were 10.46 million light vehicles sold in October, according toAutodata, up from 9.22 million. That tally fell short of August’s 14.09 million and July’s 11.24 million — the two months when the clunkers program was in effect — but it was higher than any other month in the past year.

Even with all the beaters the clunkers program took off the road, there may be people itching to trade in their old cars. In a typical year, about 5% of U.S. vehicles are scrapped. With a current light vehicle population of about 240 million, that would translate into about 12 million autos heading for the junkyard. But over the past year, light vehicle sales have come to only about 10 million.

If post-clunkers sales continue to stabilize, it might allay some of the concerns about the housing market. The National Association of Realtors and home builders have warned that the expiration of the home-buyer tax credit will have a negative impact on sales. But similar to vehicle sales, home sales have been extremely depressed. Pent-up demand might keep enough home buyers in the game to keep sales stable. Americans are still changing jobs, having children or shipping kids off to college.

This is something I’ve commented on before; auto sales and home construction are both depressed to levels that almost ensure a rebound. The average age of an auto in the US is nearing 10 years and as the economy gradually improves, some of those cars will be replaced. Auto sales of 12 to 14 million is pretty average over the last 30 years:

The same is true of new home construction. With new household formation of 1 to 1.5 million per year, we can’t keep building less than 500,000 units for very long. A cyclical recovery is in the works and I suspect that with the additional monetary and fiscal stimulus, it will be bigger than people expect.