Growth in auto sales is generally considered the cause of gains made in outstanding consumer credit’s non-revolving component---its largest component (not credit cards). December numbers, reported on February 7th, show a gain of $19.3B. Analysts expected an increase of only $7.0B. Of the $19.3B gain, some$16.6B came from non-revolving credit. That is, term loans. This leaves only $2.8B for revolving credit. Cars are bought on term loans and not revolving credit.
November consumer credit gains revealed an increase of $20.4B, with analysts expecting only $7.6B. Of this November’s increase, non-revolving credit grew by $14.8B, with revolving increasing by $5.6B. November’s increases were also handed to auto sales. Auto sales have been the lead on broad retail sales, while staples and discretionary have faltered. That is, people are buying cars and home improvements.
One can come to this conclusion of what is driving the economy based on the Retail Sales table in the below article. After all, Consumer credit grew at only $6.9B in September and by $7.7B in October.
We try at this blog to know where growth is slowing, or beginning on the supply chain continuum. Currently, the consumer is showing exceptional strength in buying cars and home improvement products. At the same time, other sectors are also benefiting from the strength in autos. Such being mining, machinery and industrial manufacturing. In fact, the evidence shows that where global weakness otherwise exists, autos have had a ringing effect throughout associated sectors. Wholesale results demonstrate the point.
The Census Bureau’s wholesale trade numbers came out February 9th showing December results. This report monitors wholesale inventories which approximate 26% of total business inventories. Retail inventories occupy 1/3 of the total, and manufacturing inventories account for 41% of the balance. According to the wholesale trade report, sales of merchant wholesalers were up 1.3% for December at $413.1B. Wholesale inventories were up 1.0% at $473.2B. And, the inventory/sales ratio is stable at an efficient 1.15. Durable goods lead the way with an increase of 2.4% for December versus November and an increase of 13.3% y/y. Nondurable goods showed a December .4% rate with a yearly gain of 10.7%.
Looking at the components of wholesale trade reveals the effects autos have been having. Automobile sales grew 3.9% in December compared with November and are up 25% versus a year ago. These gains have helped metals wholesalers with the metals industry showing a 6.5% December sales gain with a 21.7% increase over last year. Machinery wholesalers are also profiting from a drive in autos. Machinery sales were up 5.2% in December and up 22.3% compared with last year.
Industrial production results were reported on February 15th. They also show the building pattern of the influence of autos strengthening Q4 economic indicators. January industrial production came in flat at 0.0%. However, motor vehicle output climbed 6.8%, after growing 3.8% in December. Non-durable goods production fell-0.2%, after growing 1.3% in December.
Sustainability of the Auto's Influence
Sustainability of the Auto's Influence
Based on the evidence, it appears that auto sales have been providing a major boost to the economy. Given the nature of auto production, this boost has ramified through various other sectors such as metals and overall manufacturing. Thereby cause for suspicion exists.
Motor vehicles remain a single economic component. This raises questions over the sustainability of economic progress powered by the automobile. Preferably, one would like to see balanced growth spread among various sectors. I would also like to say that the growth in autos and consumer credit bodes well for retail in general by indicating a revived consumer. However, looking at other aspects of retail sales, together with the business operations of companies like Walmart over the last couple of quarters….(albeit, Walmart did well in Q4).
Looking at the weekly chart to the left, the Dow Jones U.S. Automobile index is compared with the Dow Jones U.S. General Retailer’s index. As one can see, from March of 2009 through December of 2010, the auto index has outperformed the general retail index.
However, starting in early 2011, general retail started to beat autos substantially. Ironically, despite the contribution auto sales have apparently made to economic indicators, the auto index’s performance in Q4 and into Q1 has been biased up, but very choppy. This could reflect hesitancy on the part of investors regarding the sustainability of high auto production. In fact, given the almost flat performance since October of autos against general retail given stock pricing, it appears that investors simply aren’t convinced of retail’s strength in general.
Speculation exists that the Census Bureau’s flat retail numbers over Q4 could very well result in a downward revision in Q4 GDP. Hopefully the surge in auto production and sales is the start of consumer engagement and simply not a flash.
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