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Dollars and Sense: Strong auto sales signal consumer confidence


Toyota cars for sale are parked at a dealership in Danvers, Mass. Associated Press/Photo by Elise Amendola

Dollars and Sense: Strong auto sales signal consumer confidence

A mixed bag. The news was pretty mixed last week. On Monday, a key measure of manufacturing activity indicated the economy is slowing down. The closely watched Institute for Supply Management index of manufacturing activity fell to 53.5, two points lower than last month’s reading. A reading above 50 indicates the sector is expanding, so U.S. manufacturing—which helped lead the country out of the recession—is still growing, but barely.

Job market improving. We learned in January that employers added 257,000 jobs. The government also revised upward numbers from previous months. The economy added 329,000 jobs in December and a very strong 423,000 jobs in November. That said, the unemployment rate barely moved, as more Americans are moving back into the labor market.

Consumer spending flat. About 70 percent of U.S. economic activity is tied to consumer spending, so it was not good news that it declined 0.3 percent in December after rising 0.5 percent in November. That decline was worse than economists expected, but offered some good news: Much of the fall is due to tumbling gasoline prices.

Stability in oil markets. Speaking of gas prices, the crude oil markets seemed to be a bit firmer last week. Crude oil rose back above the $50 a barrel level. That was good news for U.S. producers, and it seemed to indicate a return of some stability to the energy market. Of course, if that’s true, it also likely means gas prices have bottomed out.

Steel and gasoline. We got some great auto sales numbers last week, and there’s some speculation the strong sales are the result of low gas prices. Ford sales in January jumped 15.3 percent from a year earlier. General Motors gained 18.3 percent. Chrysler Group sales rose by a slightly smaller 14 percent. Usually gas prices don’t effect whether you buy a new vehicle but influence what kind you buy. So I would say these strong vehicle sales are more the result of consumer confidence growing and continued low interest rates, along with purchases deferred as a result of the Great Recession. The average age of vehicles on the road has gone from about nine years in 2002 to more than 11 years today. But a lot of those older vehicles are now getting traded out.

European developments. For months now, Europe has been one of the trouble spots in the global economy. Last week, we saw turbulence in the currency markets, especially Switzerland and Russia, and the euro is at historically low levels. But some rays of hope emerged. Even Greece, which has created volatility in the global markets for weeks, seemed to offer some possibilities of stability. A deal between Greece and its European creditors seems more likely now that the country’s new government backed away from demands to write off a large part of its bailout loans. The prospects of a write-off had created jitters for both creditors and investors. Greek stocks led a European market rally last week. In fact, I should mention that I’m hearing more talk that because the U.S. markets are at record highs and European markets have been so beaten down, Europe is the place for equities investing. That talk was fueled this week by news that about 61 percent of European stocks had so far beat earnings estimates for the most recent quarter. That’s significantly above the historical average of about 49 percent.

The week ahead. Earnings reports from most U.S. companies are in, and the analysis can begin. That said, a lot of retailers have January fiscal year-ends. The last quarter of the year is key for them, so as they release earnings over the next month, a lot of analysts will be watching. On Thursday, we’ll also get retail sales numbers, the biggest government report for the week. Barring any unforeseen events, look for retail and consumer confidence to be the big themes for the week ahead.

Listen to “Dollars and Sense” on The World and Everything in It.


Warren Cole Smith

Warren is the host of WORLD Radio’s Listening In. He previously served as WORLD’s vice president and associate publisher. He currently serves as president of MinistryWatch and has written or co-written several books, including Restoring All Things: God's Audacious Plan To Change the World Through Everyday People. Warren resides in Charlotte, N.C.

@WarrenColeSmith


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