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Despite Distractions, US Economic Recovery Gains Momentum

Eldon Mast — Tue, 08 Jun 2010 14:45:16 +0000

Recent distractions with economic uncertainty in Europe have turned many heads, but the strong U.S. economic recovery rolls on. Just about all new U.S. economic reports are now posting positive results. This past week was no exception.

A very strong month-to-month surge in new manufacturing orders and additional employment boosts highlighted another robust ISM manufacturing report. New orders have been rolling in steadily now for well over a quarter and employment is now accelerating a level not seen for almost 6 years. Other ISM readings included strength for production, backlogs, and export orders. Additionally all the activity in production is drawing-down inventories – a sign that points to additional necessity for inventory restocking and even further production and employment.

The recent surge in home sales has also carried over to unexpected strength in construction activity. Construction outlays in April have jumped 2.7%, following a 0.4% rebound in March. Even though economists knew about expiring tax credits for home buyers, the consensus had expected no change for the April reading. The recent jump in home sales has now cut home inventories enough to give contractors renewed confidence to pick up their pace of additional construction.

Car and truck sales are also proving very solid. In the latest report, sales are now ramping to an annualized adjusted rate of 11.6 million — surpassing April’s 11.2 million. The best news for the auto sector is that even now that those government incentives have been curtailed, sales continue to ramp steadily.

The Challenger’s job-cut report held its count at a pre-recessionary 38,810 in May. The level is little changed month to month, but compared to last year’s 111,182 in May the rate is now at “normal” levels. The report supports continued expectations for sizable payroll gains and lowering unemployment rates in the months to come.

The ISM’s non-manufacturing composite also continues to report solid gains. Its readings continue to indicate steady month-to-month acceleration in activity. The employment component of the report now shows a net gain in hiring with rising backlogs pointing to accelerated hiring ahead.

So while short term market fluctuations many times have folks asking if the recovery is over, the reality is all indications are that this recovery cycle (even though it is now about a year old) is likely just getting started. Fundamentally, most indicators now point to steady economic growth and an increase in hiring for the foreseeable future.

Economic Events on May 3, 2010

B.P.T. — Mon, 03 May 2010 11:40:33 +0000

The figures for motor vehicle sales in April will be released today. The consensus estimate is that 8.8 million autos were sold in April, which would be the same number of autos sold in March.

At 8:30 AM EDT, the monthly Personal Income and Outlays report for March will be released. The consensus for Personal Income is an increase of 0.4% over the previous month, after there was no change in February. The consensus for Consumer Spending is an increase of 0.6%, and the consensus Core PCE price index change is no change, and it was flat in January and February.

At 10:00 AM EDT, the Construction Spending report will be released, and the consensus is a decline of 0.3% compared to the previous month as weakness continues in all segments of the construction industry.

Also at 10:00 AM EDT, the ISM Manufacturing Index for April will be released. The consensus is that the index value will be 61.0, which would be an increase of 1.4 points over March, because of strong new orders reported for March.

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Easter Week Issues a String Of Positives

Eldon Mast — Thu, 08 Apr 2010 16:40:06 +0000

The last week of economic news has been quite notably positive.

Last Wednesday, March 31, started with the Mortgage Bankers Association reporting that its purchase index was up a very sharp 6.8 percent for the fourth gain in the last five weeks.

A few hours later Chicago’s arm of the Institute of Supply Management reported that business activity in the Chicago region remains robust. According to according to Chicago area purchasers the ISM index came in at a very strong 58.8 — a signal of significant economic growth relative to February.

A few minutes later, the government reported that factories are cranking it up right now with strong orders in February that followed even stronger orders in January and December. Factory orders rose 0.6 percent in February reflecting an upward revised 0.9 percent month-to-month rise in durable goods orders and a 0.3 percent rise in non-durable goods.

On Thursday April 1, Monster Worldwide reported that its index rose to 125 and is now up 11 points compared to January. Their report said the improvement is signaling that companies are starting to hiring again. Their index is a comprehensive monthly analysis of U.S. online job demand and is based on a real-time review of a large, representative selection of career sites and job boards, including Monster’s own postings.

Subsequently, the auto sales in March proved much stronger than February. Sales of domestic-made cars and light trucks rose to an annual unit rate of 8.8M, up more than 15 percent vs. February’s 7.6M rate.

In additional labor news on Thursday, fewer Americans filed jobless claims in the March 27 week. Initial claims for that week came in at 439,000 vs. 445,000 in the prior week. The four-week average fell 6,750 to 447,250 and is down roughly 20,000 from levels in February.

Shortly thereafter, the ISM released its March Manufacturing report on business which offered very convincing evidence of continued recovery. Their PMI index jumped 3.1 points to 59.6 well above all economists expectations. All the major components of the index showed strength and new orders continue to be particularly strong. Inventories — which are a very key positive, soared to a very surprising 55.3 level which is indicative of a broad restocking effort in the sector.

And the big news on Friday was the positive jobs report. Private payrolls (which discount Census hiring and other government changes) jumped 123,000 in March, following an 8,000 rise in February and a 16,000 gain in January.

This week continued to post positive economic news.

On Monday, the ISM published its the non-manufacturing index. It came in at 55.4 for a solid month-to-month acceleration in March and the third month of growth in a row. The the manufacturing report, new orders again led the sub-indexes with a sizzling 62.3 reading — the sharpest month-to-month acceleration in five years.

Co-incident with the ISM report release, the National Association of Realtors reported that pending sales for existing homes jumped 8.2%. The Realtor’s Group, which compiles the data, also reported an increase in multiple offers in some markets. Further they reported that the Midwest was the strongest market in February, jumping 21.8%, with both the South, the biggest region, and the Northeast showing solid month-to-month gains.

And Tuesday the ICSC-Goldman reported a major increase in retail sales in both the April 3 week and for the month of March. Week-on-week, sales jumped 2.1% and year-on-year, sales surged 4.7% These rates are well beyond anything posted by Goldman so far during the recovery. ICSC-Goldman then sharply revised its full-month March sales from a year-on-year plus 3.0 to 3.5 percent to an 8 to 10 percent increase!

These results indicate enormous strength, beyond seasonal adjustments, for the Commerce Department’s ex-auto ex-gas retail category. They continue to underscore our assertion that Q1 2010 GDP growth will come in much stronger than that of an already strong 2009 Q4.

Ford Reports Best Monthly Sales Increase In Over 25 Years

Eldon Mast — Fri, 02 Apr 2010 14:38:54 +0000

On Thursday Ford Motor Co, said gross sales rose 43% in March. The increase — which mirrored (yet surpassed) a similar gain in February — had Ford registering the highest monthly sales increase since February 1984.

Other auto business is also up. GM reported a 43% increase. Toyota said unit sales are up 41%. And Honda reported a 22% increase.

“We saw incentives rise and prices fall at some of our competitors,” said Ken Czubay, vice president of U.S. marketing for Ford.

Ford wants to limit its incentives to models that directly compete with Toyota, such as its Fusion mid-sized car, which competes with Toyota’s Camry, and the Ford Focus, which is a rival to the Toyota Corolla.

“We are standing by our cars, and we’re grateful that our customers are standing by Toyota,” said Don Esmond, senior vice president of automotive operations for Toyota Motor Sales.

“Our March results show continued progress toward our growth plan,” said Susan Docherty, GM vice president of marketing. “By investing in our brands and remaining disciplined in our approach to the U.S. market, we posted solid results.”

And is credit flowing again at the car dealerships? A 0% financing offer by Toyota, was soon matched by all the other large manufacturers including GM, Ford, Chrysler, Hyundai, Nissan and Honda.

It appears as though auto sales growth is accelerating in Q1, just like the rest of the U.S. retail sector growth.

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Economic Events on April 1, 2010

B.P.T. — Thu, 01 Apr 2010 11:45:26 +0000

At 8:30 AM EDT, the weekly report on initial jobless claims will be released, and the consensus is 440,000 new jobless claims, which would be a slight improvement over last week’s better than expected report, and would continue the positive trend in employment.

At 10:00 AM EDT, the Construction Spending report will be released, and the consensus is a decline of 1.1% compared to the previous month. Given that new housing starts were down sharply in February, construction spending should weaken as well.

The figures for motor vehicle sales in March will be released today. The consensus estimate is that 9 million autos were sold in March, which would be an increase of 1.4 million over February, though February sales were hurt by winter storms and Toyota’s recalls.

Also, there are a number of Treasury bond auctions today. Recent auctions have shown some weakness in the Treasury market, causing interest rates to rise, and investors will watch these auctions to see if the trend continues.

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Dubai Fears Fade: Positive Economic Data Builds

Eldon Mast — Wed, 02 Dec 2009 15:50:14 +0000

What a difference a few days have made in the mainstream headlines.

Overblown concerns about Dubai defaults are quickly shifting to the into the shadows. On Tuesday clarity on the extent of the loan restructuring indicated that Dubai World likely would restructure debt worth $26 billion against earlier talk of a possible $59 billion default.

Moving to center stage was a string of economic good news on Monday and Tuesday.

To kick off the week, gains in new orders were the highlight of November’s Chicago purchasers’ report. Chicago’s PMI rose nearly 2 points to 56.1 to indicate another strong month-to-month increase in the pace of overall business activity in that area of the country. New orders rose 1.4 points to a very strong 62.8. The Chicago survey includes both service and manufacturing segments of the economy in its report.

Contrary to a more gloomy consensus forecast, reports Tuesday showed a continued rebound for the auto sales even in the absence of government incentives. Sales of domestic-made vehicles came in at an 8.2 million annual rate in November, considerably above the 7.9 million rate in October.

On the retail front, Redbook reported strong results for the Nov. 28 shopping week. Redbook’s year-on-year measure for the week is up 3.8 percent and week over week up 1 full percentage point! (That’s 52% annualized). No doubt this is the strongest retail rate of the year and Redbook projects an exceptionally strong 5.2 percent rise in November vs. October. (That’s a heady 62% annualized)

Indications in the manufacturing sector continue to point to strength with ISM’s report showing continued momentum. The manufacturing new orders component of the index (the report’s leading indication for future activity) continues higher to 60.3 for a 1.8 point gain. Acceleration in new orders and gains in backlogs show a healthy mix pointing to rising production and rising employment ahead. Employment continues much improved from earlier in the year, holding above 50 in November from October’s very strong level of 53.1. You’ll remember the past relationship between ISM’s PMI and the overall economy. If the correlation to the PMI for November is annualized, it corresponds to a 3.9 percent increase in real GDP annually.

Then home sales reports were released. You may remember that existing home sales got a giant boost in October as speculation increased that the homebuyer’s credit expiration would pull sales forward and then dip in subsequent months. But to the contrary Tuesday’s report points to continued strength ahead. Pending home sales jumped nearly 4% in October adding to September’s 6% gain. Year-on-year pending home sales are now up a robust 32%.

Then early Tuesday afternoon, Philadelphia Federal Reserve Bank President Charles Plosser gave his views on monetary policy. Plosser (like us) sees economic recovery to be a little more modest than many gloomy economists. Said Plosser, “Looking ahead to next year, I expect real GDP growth from the fourth quarter of this year to the fourth quarter of 2010 to be about 3 percent. I expect similar real GDP growth in 2011. These rates of growth are more modest than what some forecasters anticipate.”

This economic recovery continues to build momentum. No surprise here.

Auto Sales Cruise Ahead in October

Eldon Mast — Wed, 04 Nov 2009 16:21:59 +0000

On Tuesday major auto manufacturers indicated that their October sales rebounded significantly following a weak September.

The increase to the US annualized sales rate was nearly 20 percent better than September’s measure. Early estimates show the bump adding $5 billion, or roughly 1.5% to October’s retail sales numbers versus September’s readings.

It now appears as though consumers no longer needed cash-for-clunker rebates to commit to new auto acquisitions in October.

GM, Ford and Nissan all reported that their sales are now up from a year ago.

Jessica Caldwell, senior analyst at auto industry tracker Edmunds.com said, “We are trending in the right direction,” and “it should be easier for auto companies to report year-over-year growth from this point on.”

Ford — which reported a strong profit on Monday — claims that increased production in October will help to replenish diminished supplies on dealer lots. Further, Ford sales management points to strong restocking demand through the end of 2009.

The Remarkable Indian Automobile Industry

Ajay Shah — Mon, 05 Oct 2009 16:13:05 +0000

Swaminathan S. Anklesaria Aiyar has an article in Economic Times on India’s remarkable emergence as an exporter of automobiles. Mahesh Vyas has an article in Business Standard on the recent rebound in automobile production and sales. And, here’s the link to the CMIE website on cars.

It’s interesting to look at (seasonally adjusted) US data for sales of automobiles. Possibly helped by the cash-for-clunkers program, this data shows a strong bounce, back to the levels seen in early 2009. Click on the graph to see it more clearly:

Giovanni Veronese emailed me a fascinating graph, with seasonally adjusted data for Indian commercial vehicles. Click on the graph to see it more clearly. This is not quite comparable with the above, since it pertains to commercial vehicles and not cars. And, Indian exports are unlikely to have benefited from the US cash-for-clunkers program. All the three lines on the graph are seasonally adjusted levels, indexed to 100 for the production of January 2005. The red line is for Indian exports. It shows a very high rate of growth – a roughly 50% rise over the period from 2005 to early 2008. This is the incredible rise of India as an automobile exporter, the story told by Swaminathan S. Anklesaria Aiyar. Unlike sales of cars in the US, this has not recovered to pre-crisis levels.

The green line is domestic sales. This shows a recovery similar to that seen in the US – back to the values immediately before the crisis, but without a cash-for-clunkers program being run by the government.

The blue line is automobile production. It shows savage cuts in production executed by the industry when the financial crisis appeared. This was unlike the standard script for downturns as we know them, where firms generally build up inventory when sales slow down. This time around, working capital financing in order to hold inventory was hard to find. I also think that the headlines and television dramatisation of the early stages of the downturn, accompanied by sharp movements in the prices of securities, were useful as an early warning system. This triggered off action by CEOs well before the full bad news came out through sales. As a consequence, there was very little inventory in hand, and production bounced back nicely when sales came back.

If the three indexes had continued to grow as they had done pre-crisis, then all three would have been roughly at values like 200 today (i.e. one doubling ahead of the values of January 2005). Instead, we’re back to the pre-crisis level of 150.

It is really important to do seasonal adjustment, and then eyeball time-series of seasonally adjusted levels, in order to understand what is going on with these series. We’ve been updating a set of series every Monday morning, and releasing these as a public good.

Is GM’s Money-Back Guarantee Good News?

Eldon Mast — Tue, 15 Sep 2009 17:09:30 +0000

Last week General Motors (GM) announced their new program that further attempts to boost consumer confidence in their vehicles. The money-back guarantee states that you can return the vehicle for any reason, no questions asked, up to 60 days after purchase.

A quote from GM’s press release reads like this:

General Motors announced today that it will offer a Satisfaction Guarantee to eligible buyers of new Chevrolet, Buick, GMC and Cadillac vehicles. The guarantee allows customers to return their vehicle to their dealer between 31 and 60 days of purchase and receive a refund of the purchase price for the vehicle.

GM’s idea is that the program will prove that their vehicles are just as good as their competition. That might be, but there is likely even better consumer news just around the corner and that just might translated to further good news for the auto industry.

As most entrepreneurs will attest it is almost always a good idea to offer a money back guarantee. And so it is extremely likely that several other major car makers will follow suit quickly offering very similar programs for their 2009 and 2010 models. The result? More hesitant consumers will see this as just one more reason to move from a very conservative fiscal stance to one that takes a bit more risk on a big ticket purchase. Why not? There will be nothing financially to lose for up to 60 days.

For GM, there is no guarantee that the program will only boost interest in their vehicles, but it does seem clear that if other automakers follow suit, the auto industry (and the economy as a whole), will likely benefit by this increased second half activity.

Clunkermania Part 2: Senate Agrees to Move Forward

Eldon Mast — Fri, 07 Aug 2009 15:38:43 +0000

It looks like packed US car dealerships will continue. Late Wednesday the Senate majority leader Harry Reid announced that the US Senate now has enough votes to pass the House version of a bill to extend the popular automobile stimulus program.

Car manufacturers, their dealerships, and factory workers across the country are cheering. The firms have stated that the clunkers program is significantly driving up sales with most consumers buying smaller, “greener” vehicles.

General Motors Co (which just emerged from bankruptcy earlier in July) reported the best news among all the car makers accounting for nearly 1 out of 5 vehicles sold under the program. The program’s extension is now likely to lead all automakers to increase production and bring back laid-off workers. Several have already announcing plans to increase production cycles and others likely will follow suite once “part 2″ of the program funding is in place.

Late Wednesday night, Ford’s chief financial officer, Lewis Booth, said his firm would decide on production increases shortly and make an announcement in several weeks.

The Clunkermania developments provide more evidence of the increasing potential for a strong bounce in Q3 GDP growth.

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