Over the last few weeks there has been a shift in view to the downside for several industries, including agricultural equipment, housing and retail. With corn and wheat prices dropping due to bumper crops expected in the U.S. and oversupply in China, Wall Street has turned bearish on companies like Deere & Co. (DE), AGCO Corp. (AGCO) and others. The housing market, which has been weaker than expected during the first half of 2014, recently saw Fannie Mae downgrade its outlook for home sales and construction to 1.4 million single-family units in 2014 and 2015, compared with 1.6 million previously estimated.

These are reminders that no matter how bullish one may want to be on a particular industry, it’s important to keep tabs on the underlying fundamentals no matter what Wall Street analysts may or may not be saying. I’ve had my share of concerns for the consumer over the last several months given the rise in food prices and meager progress with wage growth that, taken together, has pressured disposable incomes. According to survey data by Consumer Edge Research, last month 36% of high-income households, (defined as those earning more than $100,000 a year) said food prices are negatively impacting their overall spending habits, up from 20% in January. We’re seeing these factors play out and weigh on forecasts offered by Macy’s (M), Best Buy (BBY), Nordstrom (JWN), Target (TGT) and others.

Which brings us to the much-heralded automotive industry, which has been strong over the last several quarters as consumers have been on a buying spree.

 

Fueling that rebound have been several factors including the need to replace the existing car and truck fleet, greater fuel efficiency, and let’s not forget the impact of Hurricane Sandy. It’s easy to understand why coming out of the Great Recession consumers put off replacing their cars and trucks, after all with no job and tight income, replacing that big-ticket item could be rather difficult to do. That pent up demand along with extremely favorable auto loan rates eventually led to the rebound in automotive sector, which benefitted not only automotive manufacturers like Ford (F) and Toyota (TM), but also companies all across the supply chain, not to mention banks like Wells Fargo (WFC), Capital One (COF), Bank of America (BAC) and other major players in the auto loan market.

When it comes to the age of the auto and truck fleet moving down America’s streets, highways and freeways, IHS Automotive finds the combined average age of all light vehicles on the road in the U.S. remained steady year-over-year at 11.4 years, based on its findings in January of this year.  That’s the highest age on record since IHS began collecting the data almost 20 years ago, back in 1995.

All of these factors suggest a rather rosy outlook for automotive demand even after several quarters of solid year-over-year growth. In late July, J.D Power bumped up its 2014 forecast for retail light-vehicle sales to 13.5 million units from the previous forecast of 13.4 million, and projected total light-vehicle sales of 16.3 million units in 2014, up from the prior 16.2 million. Each of these forecast equates to a 5% increase year-over-year.

Recently, however, the Federal Reserve Bank of New York issued a report that found U.S. auto loans had jumped to the highest level in eight years this spring. While that corresponds with the surge we saw in auto and truck sales, peering beneath the headlines we find there is more to the story, and in this case it's the Fed's findings that the auto loan surge was fueled by a big increase in lending to risky borrowers. More specifically, the Fed's data show that the dollar amount of subprime auto loans -- defined as loans to borrowers with credit scores below 620 -- has nearly doubled since 2010.

That alone is enough to raise an eyebrow or two, but we also have to factor in the likelihood that interest rates will move higher in 2015 and that will ripple through auto loans. Yes, that will make buying a car even more expensive and a potential risk is we could see auto demand pulled forward into the first half of 2015 from the second half if the Fed’s implied rate hike timetable becomes reality.

There are other potential drags to consider -- the recent Report on the Economic Well-Being of U.S. Households from the Federal Reserve Board showed some 24% of the population holds some form of education-related debt, with the average debt level around $25,750. Keep in mind median household income, according to Sentier Research, was only $53,891 in June (still well below its June 2009 level). Now for the bad news, the Fed’s report showed that 18% of those with debt were behind on payments in some way for their student debt. Worse yet, nearly a third of U.S. adults have no savings or pension to help them afford retirement, according to the Federal Reserve Board. Keep in mind too that odds are pretty good that you’ll be paying more for your health care next year. PricewaterhouseCoopers expects "medical cost trend" -- the change in the underlying cost of care -- will be a 6.8% increase in 2015.

Put it all together and it looks like 2014 could very well be the peak for automotive sales, particularly if pent up demand has been satiated. Next year could still be a decent year for auto and truck demand, but for those looking for the inflection point, the next few months forecasts from J.D. Power, IHS Automotive, GE Capital and others will be items to watch. Currently GE Capital is forecasting a 1%-2% increase in North American light vehicle production in 2015. For the skeptics, if automotive demand was expected to continue to ramp over the next few years then why would IHS forecast the average age of vehicles to remain at 11.4 years through 2015, then rise to 11.5 years by 2017 and 11.7 years by 2019?  It is the wise investor that looks beneath the headline data to uncover the true underlying trends, which in this case do not fully support the magnitude of cheering in this sector.