NEW$ & VIEW$ (5 SEPTEMBER 2013)

Auto U.S. Car Sales Soar to Pre-Slump Level

The U.S. auto industry has shifted into high gear with new-car buyers snapping up vehicles last month at a pace not seen since before the financial crisis.

All told, buyers purchased 1.5 million vehicles last month, up 17% from a year ago, with nearly all major auto makers reporting double-digit sales gains.

August’s sales translated to an annualized pace of 16.09 million vehicles, up from December 2007’s about 16 million. Some 17.4 million vehicles were sold in 2000.

Automotive website TrueCar.com estimates car companies spent an average of $2,477 on sales incentives last month, down 2.6% from a year ago and the lowest level since January.

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Pointing up  The CalculatedRisk chart above shows that car sales are back to their previous 4 cyclical peaks if one accepts that the 1998-2007 levels were boosted by the irrational exuberance that characterized those years and are unlike to repeat anytime soon. However, unlike housing, interest rates on car loans have not risen just yet. But keep in mind that truck sales have jumped lately on the back of an improving housing sector.

(Bespoke Investment)

The WSJ article goes on with these interesting facts on the auto industry:

While the sales pace returned to prerecession levels, the U.S. auto industry looks nothing like its old self. GM, Ford and Chrysler Group LLC are now much leaner. GM employs about 212,000 people in the U.S., about 31,000 fewer than in 2008. Ford’s workforce here is about 171,000, down 42,0000 from five years ago. Before Chrysler was split off from its German partner, Daimler AG, it employed 83,000. Today, its payroll is about 65,000.

That’s nearly 100k (-24%) fewer employees for the same sales volume. 

The three auto makers combined have closed more than two dozen auto-assembly, stamping, engine and transmission plants across the Midwest and in Canada. Health care costs for retired union workers, which once added about $2,000 to the cost of a car, are now born not by the companies but union-controlled trusts. Union wages have also fallen. New hires started at about $14 an hour, half of what veteran workers make.

Detroit auto makers abandoned brands such as Pontiac, Saturn, Hummer and Mercury. GM and Chrysler dropped more than 2,000 dealers from their sales networks, and all three companies stopped profit-denting practices such as dumping cars into rental car fleets and stuffing dealers with cars and trucks that consumers didn’t want.

As a result, the Detroit Three can now make money at lower sales volumes, and on lower-priced vehicles. A decade ago, all three companies struggled to make money when Americans were buying more than 16 million cars a year regularly. Now they say they can make money with sales below 12 million vehicles a year.

TITLE EXUBERANCE

 

Data Signal Consumer-Spending Rise

Imports rose 1.6% in July from the prior month, aided by strengthening domestic demand for industrial supplies and consumer products, Commerce Department figures showed Wednesday. Exports fell 0.6%, giving up some ground after the surging to a record high in June, though several key U.S. export markets showed signs of firming.

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A quick look at the imports chart reveals precious little hint of a revival. Imports have been flat for 18 months. Now, that is partly due to declining oil imports which the WSJ article omits to mention. Actually, total imports are up 4.5% annualized in the last 3 months but non-petroleum imports are up a meagre 0.8% annualized and only 1.3% Y/Y in July as this Haver Analytics chart shows.

 

Here’s the interesting part from the trade report:

July exports to the European Union rose a non-seasonally adjusted 2.6% from the same period a year earlier, bucking a recent downward trend.

July exports to Brazil of $4.4 billion were the highest on record. Exports to China also rose, reflecting a stabilization in the world’s second-largest economy after a sharp slowdown in growth earlier in the year.

The positive trend in U.S. exports to the E.U. becomes even more significant when we consider that Canadian exports to the E.U. were down some 18% YoY in July. Big market share shifts underway?

CANADIAN HOUSING

From BMO Capital:

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U.S. Economy Grew at Modest to Moderate Pace in July, August

(…) The central bank’s “beige book” report, a summary of conditions in its 12 districts from early July through late August, was largely positive. Eight districts reported moderate growth, while three said growth was modest. The remaining district, Chicago, said economic activity had improved.

Back-to-school shopping helped boost overall consumer spending, particularly in Boston, Kansas City and Dallas. Sales were mixed in New York, and were more modest in the other districts. Activity in the travel and tourism sectors expanded in most areas.

Demand rose in part from stronger car sales and housing-related goods such as furnishings or home-improvement items, the report said. Still, several regions said consumers remain cautious and “highly price-sensitive.” (…)

Wage pressures remained modest overall, with some companies in the New York region reporting more willingness to negotiate salaries. Still, pay rates “have not escalated significantly,” the report said. Rising health-care costs have continued to put upward pressures on overall compensation costs.

Lending activity weakened a bit, the report said, with several districts reporting less-favorable conditions than in the preceding period. Several regions described business lending as largely flat, and Chicago said that the recent interest-rate rises were likely depressing commercial investment. (…)

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Bank of Japan Says Economy Is on Recovery Track

The Bank of Japan on Thursday formally proclaimed that the world’s third-biggest economy is back on a recovery track, a move that could tip the balance in favor of those who support a sales-tax hike from next spring as Prime Minister Shinzo Abe nears a decision on whether to go ahead with the plan.

The upgrade in the central bank’s assessment will likely strengthen speculation that it will hold off on any additional monetary easing for the time being, at least until the sales-tax increase is launched in April. The BOJ’s nine-member policy board Thursday decided to stand pat on monetary policy.

China Record Drop in Credit Growth Puts Momentum at Risk

New yuan loans were probably little changed in August, after aggregate financing, the broadest measure of credit, posted a fourth straight drop in July, the longest streak in 11 years of data.

The moderation in credit after a record first-quarter financing boom stands to cap an economic rebound being driven by a recovery in confidence and Premier Li Keqiang’s support measures, such as faster spending on railways. Overcapacity and pressure to clean up debt loom as challenges, according to JPMorgan, which sees growth slowing to 7.2 percent in 2014 from 7.6 percent this year.

DIGGING FOR YIELD? Make sure you don’t burry yourself.

For the full year, bonds rated CCC or lower have gained 7.1% while AAA debt has lost 5%. It’s only the third time since 1996 low-rated debt has gained while top-rated paper lost value.

America’s ‘Baby Bust’ Starts to Ease The nation’s fertility rate stabilized last year for the first time in five years. That follows four years of big declines during the economic downturn that pushed the rate to the lowest levels on record.

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Demographic Intelligence, a for-profit forecasting firm, projects the so-called total fertility rate—which measures the average number of children born to women over their lifetimes—will rise slightly from 1.89 children per woman in 2012 to 1.90 in 2013. The rate stood at 2.12 in 2007.

Sam Sturgeon, the firm’s president, sees “modest” increases in 2014 and 2015 too, though not enough to reach the 2.1 rate that is considered the level needed to keep the U.S. population stable. When asked, American women still say they want two children—one boy and one girl, Mr. Sturgeon said.

 

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