SUV Sales Plow Through February Poor weather modestly dented the pace of U.S. auto sales in February, but did little to stem America’s increasing thirst for pricey trucks and SUVs.
While several auto makers posted lower-than-expected volumes for the month, light-vehicle sales rose 5.3% from a year earlier. The annualized sales pace eased to a 16.23 million adjusted rate, from 16.66 million in January.
In February, sales of light trucks—buoyed by low fuel prices—represented 54.4% of the market, a level the segment hasn’t reached on an annual basis since 2005.
Nonetheless, vehicle sales keep failing to rise through their previous cyclical peaks, in spite of rising employment, record low financing costs and low oil prices (charts from CalculatedRisk)
Along with what has been a steady drumbeat of weaker than expected data, this morning’s release of auto sales was generally weaker than expected. Within the monthly release of auto sales, we pay special attention to sales of Ford trucks. The reason for this is that sales of pickup trucks are often a sign of strength or weakness in the small business and construction sectors as these types of businesses are the most common users of these vehicles. After a strong January, where sales of F-series trucks rose by more than 16%, sales unexpectedly declined in the month of February. Compared to last year’s February total of 55,882, sales of F-Series trucks declined 1.2% this February to a total of 55,236. Weather is surely to blame for at least some of this month’s weakness, but 2014 wasn’t exactly a mild winter, so it is not as if Ford was working with tough comps. The fact that economic data has been missing consensus expectations at such a high rate coupled with the weak truck sales from Ford suggests that the US economy is having some trouble living up to expectations.
While sales declined this February compared to last year, year to date sales are still up 7% in 2015 versus 2014, which is owed in large part to January’s 17% increase as sales of the new F-150 boosted results. While February’s y/y decline ended a five-year streak of increases, YTD sales through February have now increased for six straight years.
German retail sales jumped 2.9 percent month on month in January, smashing a forecast for 0.4 percent growth in a Bloomberg poll. Year-to-year sales growth climbed to 5.3 percent from 4.8 percent.
China Cuts Rates on Special Lending Tools
The People’s Bank of China has lowered interest rates that it charges commercial lenders on a special short-term lending tool, known as the standing lending facility, two people with direct knowledge of the matter told The Wall Street Journal.
The central bank cut the overnight interest rate on the instrument to 4.5% from 5% previously and the seven-day rate to 5.5% from 7%, said the people who requested anonymity.
India Cuts Rate for Second Time in 2015 India’s central bank surprised markets with a cut to its key lending rate for the second time this year, as it joined a world-wide trend of monetary easing.
The Reserve Bank of India cut its main repurchase rate by 0.25 percentage point to 7.5%, citing weakness in parts of the economy as well as favorable inflation figures and structural overhauls included in the government’s proposed budget. (…)
On Wednesday, the governor said an “excessively strong rupee is undesirable.” But he said the bank “doesn’t target a level” for exchange rates. (…)
In his statement Wednesday, Mr. Rajan reiterated his skepticism about the sharply revised GDP figures released recently by government statisticians. The new numbers indicate India’s economy has been growing faster than previously thought, and are at odds with other measures showing continued weakness.
Based on the new data, the government said it expects GDP to expand 7.4% for the year ending March 31. That puts India’s growth rate on par with China’s. (…)
BloombergBriefs illustrates the currency war underway. The chart does not include India’s latest move nor the ones likely to occur pretty soon:
By the end of this week, the list will probably include Poland. Some economists also forecast Australia and Canada will act for the second time this year.
Norway, Hungary and Thailand will all join the party this month, followed by South Korea in April, according to JPMorgan Chase economists led by Bruce Kasman. Out of room on rates, the European Central Bank is set to begin its 1.1 trillion euro ($1.2 trillion) bond-buying program. (…)
Meanwhile, as I have been warning:
(…) In the domestic economy, consumer preferences are shifting toward cheaper imported goods, and exporters are facing diminished demand due to a confluence of tepid external economic activity and reduced competitiveness on pricing. Case in point: given the 18 percent decline in the value of the euro versus the dollar during the past year, a domestic producer would need to reduce costs significantly to remain competitive with a European counterpart, all else being equal.
A stronger dollar may reduce some input costs, but given that labor is typically one of the largest inputs, there is limited flexibility for domestic industries to compete on price without materially eroding margins.
This is a troubling development, because the manufacturing ISM headline is closely correlated with GDP growth. If a dwindling ISM translates into diminished growth momentum, this could in turn diminish policy makers’ confidence that the economy can endure the initiation of policy normalization later this year.
The most glaring development in the survey was the fact that new export orders sank deeper into contractionary territory. This subcomponent is a useful leading indicator of exports in the GDP accounts, so it is a stark warning that the export sector is indeed foundering as a growth engine.
Some analysts attributed the dip in the ISM (and the Chicago PMI) to bottlenecks on the West Coast resulting from protracted labor negotiations. There were hints of this in the modest backup in supplier deliveries, but the series remained well below its fourth-quarter average, so it appears that the more substantive change is the deterioration in export orders.(…)
Saudi Arabia no longer talking oil down:
Oil above $60 as Saudi Arabia sees steady market Brent crude oil steadied above $60 a barrel on Wednesday after Saudi Arabia’s oil minister said he expected the oil market to balance itself.
Oil Minister Ali al-Naimi said he hoped and expected the oil market to balance and prices, which hit a nearly six-year low around $45 in January, to stabilize, adding to signs OPEC’s largest exporter is confident that demand is growing.
“I hope and expect supply and demand to balance and for prices to stabilize,” Naimi said in a speech in Berlin. “Global economic growth seems more robust.” (…)
The speech followed news that Saudi Arabia had raised its official selling prices (OSPs) for oil deliveries to Asia and the United States on Tuesday. (…)
Any sign of a lasting agreement between Tehran and six world powers, the so-called P5+1 group, could result in a flood of Iranian crude. (…)
SENTIMENT WATCH
“YOU’VE COME A LONG WAY, BABY”
I generally don’t care much of consumer surveys but this one is important as equity valuations have also gone full cycle (chart from Gluskin Sheff):
AMBITION
This is from Lars Syll (Real-World Economics Review Blog)
But remember,
1 thought on “NEW$ & VIEW$ (4 MAR. 2015): Autos Break; Currency Wars Break U.S. Exports; Equity Sentiment Soars…”
While absolute numbers of cars and light trucks sold is important for current economic data, 40-year sales trends may need to be viewed through a different methodology.
A better understanding of the auto market’s performance could be per capita equivalent year shares (the new vehicle’s retail sale value divided by the expected life of that durable good using simple annual depreciation).
For example, if a 1970 auto was expected to last 5-years, and its inflation adjusted average new sale value is $22,000 today, that would be $4,400 simple annual market value for 5-years length. If 10-million vehicles were sold, that would be a $44-Billion annual market consumption run rate. Adjusted for population of 200-million in 1970, that would be a $220 annual sales per capita use rate for that year.
Taking the 2014 sales of roughly 16-million new vehicles at an average sale price of $32,000 and an expected life span of 13-years (based upon trailing 15-year trends), that would give us a $2,462 simple annual market value and about $40-billion annual market consumption run rate. Adjusted for a population of 320-million, this gives us a per capita sales use rate of $125 for US light vehicle sales in 2014.
By this comparison, the 2014 consumption of new light vehicles in the US is down 43% compared with 1970 in spite of the 60% increase in overall sales. Of course, the depreciation schedule makes this more simplified than it should be, but I believe this method serves as a better comparison over long time frames than just utilizing raw vehicle sales numbers.
Even better data on the health of the auto market could be generated incorporating total inflation adjusted financing costs above the prime interest rate over the average loan and lease lengths of all new total vehicles sold. This would help identify sales “pulled forward” and give a window into the present underlying purchasing strength of the light vehicle market.
Frankly, from watching the US auto market over the past few decades, the current “natural” sales rate appears to be somewhere around 13.5-million units annually. Anything above that needs to be “bought” through incentives, lax credit, or a combination of the two.
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