Honda regains lost ground with the 2012 CR-V.

Despite fears of an economic slowdown, sales of new vehicles continue to chug along.

July’s new-vehicle retail sales are expected to post the second strongest year-over-year growth rate of the past 12 months, according to a monthly sales forecast developed by J.D. Power and Associates’ Power Information Network and LMC Automotive.

Nonetheless there are signs of a potential slowdown in sales in the coming months. The supply of used vehicles is creeping higher and used car prices are slipping, indicating fewer buyers are out kicking tires these days, noted analyst Art Spinella of CNW Marketing.

But July new-vehicle retail sales are projected to come in at 969,200 units, J.D.Power noted in its forecast for July. And that would suggest that the auto industry is defying the slowdown that has gripped much of the rest of the economy.

“Retail sales got off to a fast start in July, and while they’ve slowed down a bit as the month has progressed, through the first 16 selling days, they’re still up 15.1%, compared to July 2011,” said John Humphrey, J.D. Power senior vice president of global automotive operations

“The positive growth has continued to build, as July is looking strong across most vehicle segments, as well as for many of the major manufacturers,” he said.

Humphrey added all major segments are expected to show year-over-year sales gains in July, with the exception of the midsize CUV segment. The sub-compact conventional, midsize conventional and compact conventional segments are projected to show year-over-year increases of 28% or more.

Risk of further economic slowdown continues to mount as the U.S. labor market weakens. However, construction is gaining traction, which is typically a leading indicator of recovery. Given the conflicting variables and a sustained level of pent-up demand, LMC Automotive is maintaining its 2012 forecast for light-vehicle sales at 14.5 million units, with retail sales at 11.6 million units.

“The Automotive industry is closely watching the sales performance over the next two months as the industry wrestles with a mixed bag of economic signals,” said Jeff Schuster, senior vice president of forecasting at LMC Automotive. “Given the economic slowdown and the increasing likelihood that we see a second half boost in auto sales there is approximately 150,000 units of risk to the 2012 forecast.”

Schuster said through the first half of 2012, the North American light-vehicle production volume increased 22%, compared with the same period in 2011. More than 1.4 million additional vehicles have been built in the first six months this year, relative to the first half of 2011, with inventory replenishment and stronger demand in the first quarter being the main factor for the higher production volume.

Honda and Toyota’s production in the first half this year is up 75% and 65%, respectively, as both manufacturers continue to recover from the impact of the Japan earthquake/tsunami. U.S. manufacturing growth is outperforming the rest of North America, with a 26% year-to-date increase. Production in Mexico has increased 13% and Canadian manufacturing up 19%.

However, vehicle inventory in early July slightly increased to a 58-day supply, compared with 52 days in June. Car inventory remains at a below-normal level with a 49-day supply, up from 43 days in June. Truck inventory levels are at normal levels with a 67-day supply, up from 61 days in June.

LMC Automotive’s production forecast for North American in 2012 stands at 14.9 million units and represents a 14% increase from the 13.1 million units assembled in 2011. LMC Automotive expects 2013 North American production to exceed the 15 million-unit threshold, to nearly 15.3 million units.

“Increases in North American production volume remain a bright spot in the automotive industry this year, as volume teeters at 15 million units and is at the highest level since 2007,” said Schuster. “Much like demand, there remains some risk of a cooling as the year progresses, but inventory is being well managed.”