Auto Sales in 2020 Expected to Hit Lowest Point in Nearly a Decade After a volatile year, demand for new cars and trucks is recovering, fueling optimism for a sustained comeback in 2021
(…) Analysts from several research firms expect U.S. vehicle sales to total 14.4 million to 14.6 million in 2020, which would be down roughly 15% from a year earlier and the lowest level since at least 2012. The decline snapped an unprecedented five-year stretch in which sales topped 17 million vehicles annually. (…)
Now, the industry faces a lingering inventory crunch expected to last well into 2021, dealers and executives say. New-vehicle stocks at U.S. dealerships have been running roughly 25% below normal for months, with more-severe shortages in large pickup trucks. That has curbed overall sales, but also resulted in a seller’s market, sending prices soaring to record levels, along with profits for some car companies, dealers and parts suppliers.
The average price paid for a vehicle in December was around $38,000, up from about $34,000 in early 2020, research firm J.D. Power estimates. Dealers whose lots are only half full have been stingier with discounts, said Tyson Jominy, J.D. Power’s vice president of data and analytics. On top of that, buyers are shifting toward bigger, pricier vehicles like pickup trucks, he said. (…)
Some dealers say 2020 was among their most profitable years ever, due in part to better pricing and surprisingly strong used-car sales. Used cars—a key profit center for dealers—have been hot, partly because the shortage of new vehicles has steered more customers to the preowned lot.
Analysts predict auto makers will remain in catch-up mode on restocking inventory for much of the year, likely resulting in better profit margins for manufacturers and dealers—and fewer deals for consumers. (…)
The fact is that unit sales, also called demand, seem to be trending lower for now. CPI-New Vehicles was up 1.6% YoY in November and +2.5% a.r. in the last 3 months. Used vehicles: +10.9% YoY but -8.4% a.r. in the last 2 months.
U.S MANUFACTURING PMI: Operating conditions improve at fastest pace since September2014
December PMITM data from IHS Markit signalled a marked improvement in operating conditions across the U.S. manufacturing sector. The upturn was the sharpest since September 2014. Although supported by further substantial increases in output and new orders, the headline figure was pushed higher by severe supply chain disruption. Amid a significant deterioration in vendor performance, cost burdens and selling prices soared, as firms sought to partially pass on higher input prices. Output expectations moderated slightly, however, as the post-election spike eased and virus cases surged once again.
The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 57.1 in December, up from 56.7 in November, to signal the steepest improvement in the health of the U.S. manufacturing sector for over six years. The headline figure was also up from the earlier released ‘flash’ reading of 56.5.
Production growth remained marked in December, despite the rate of expansion easing slightly from November’s recent high. The pace of increase was the second-strongest since March 2015. Companies continued to link the rise to the release of pent-up demand, but some did temper this by stating that greater virus cases dampened output growth at the end of 2020.
Similarly, the rate of expansion in new orders softened in December, as some firms reported that supplier delays and reduced capacity due to additional coronavirus disease 2019 (COVID-19) restrictions had led to order cancellations. Nonetheless, the upturn was the second-sharpest since November 2018 and steep overall.
Producers of consumer goods reported a marked downturn in orders and production, reflecting weakened consumer expenditure amid the resurgence of COVID-19.
More encouragingly, producers of machinery and equipment reported sustained strong demand, suggesting companies are increasing their investment spending. Producers of inputs to other factories also fared well, as manufacturers sought to restock their warehouses.
New export orders rose at a marginal rate, but one that was the fastest for three months in the final month of 2020. A number of respondents reported stronger client demand despite the greater prevalence of national lockdowns in key export markets.
Driving the headline figure higher, however, was a substantial deterioration in vendor performance. Supply chain disruptions escalated amid supplier shortages and transportation delays stemming from a lack of available drivers, and COVID-19 travel restrictions. Lead times lengthened to the greatest extent since data collection began in May 2007.
As a result, cost burdens were pushed higher. The rise in input prices was substantial and the fastest since April 2018, driven by raw material shortages and supplier price hikes. Firms were able to partially pass on higher costs, however, as selling prices increased at the sharpest rate since May 2011.
Supplier shortages also drove firms to boost efforts to stockpile inputs, as stocks of purchases fell only fractionally in December. Post-production inventories were depleted at the fastest pace since July, however, as firms sold from stock.
At the same time, manufacturers expanded their workforce numbers at a faster pace in December. Although the rate of accumulation in backlogs of work eased, firms linked the upturn in employment to greater production requirements.
Output expectations slid slightly from those seen in November, as a rise in virus cases weighed on sentiment. Nevertheless, firms were strongly optimistic of a rise in output over the coming year.
Similar trends in Canada: strong demand, capacity pressures, rising costs, rising selling prices. The Eurozone, China and Japan PMIs had very similar readings. The World Economics’ Sales Managers Index, right on the front line, was also demand bullish and warned that “significant price rises are moving through the global sales systems”.
Canadian manufacturers registered a survey-record overall improvement in business conditions during December. Sharp expansions in new orders and output underpinned the latest growth. Sustained increases in manufacturing workloads contributed to capacity pressures and another round of job creation. There were also widespread reports that supply chain pressures mounted in December, which were often linked to the restrictions imposed to curb the surge in coronavirus disease 2019 (COVID-19) cases. Nevertheless, Canadian manufacturers remained optimistic that their output levels in 2021 will improve.
On the price front, material shortages and higher transportation costs added to inflationary pressures. Both input and output price inflation hit 26-month highs in December.
The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index® (PMI®) registered 57.9 in December, up from 55.8 in November, signalling the strongest overall improvement in business conditions since the survey began in October 2010. The headline index has now posted above the 50.0 neutral value in each month since July.
Production volumes increased at a marked pace in December, extending the current run of growth to six consecutive months. The latest expansion was the strongest since August 2018, and linked by panellists to greater order books.
Demand conditions continued to improve in both domestic and foreign markets. Canadian manufacturers recorded a substantial increase in order books, with new order growth the strongest in three months. Moreover, the rise in new work from abroad was the greatest since August 2018, driven by rising demand from clients in the US and Asia, according to panellists.
Rising workloads and long-term expansion plans contributed to another round of job creation, which was the strongest in over two years. That said, capacity pressures continued to emerge with the rate of incomplete work rising at the joint-fourth fastest pace in the series history.
Meanwhile, manufacturing firms continued to boost their purchasing activity with input buying increasing solidly. However, port congestion and difficulty obtaining materials were reflected in another marked decline in vendor performance. Subsequently, firms built up stock of inputs amid expectations of price hikes and lengthy delivery times in the months ahead.
Higher raw material and transportation costs placed upward pressures on input prices. The latest increase in overall cost burdens was the steepest since October 2018. Sharp rises in operating expenses and resilient demand conditions led to the fastest increase in selling prices for over two years.
Finally, sentiment improved to the strongest since September. Canadian manufacturers remained optimistic that their output volumes in 2021 will improve. Hopes of greater demand, business expansions and promising vaccine developments underpinned expectations.
A $13 Trillion Crisis-Era Debt Bill Comes Due for Big Economies
The Group of Seven nations plus key emerging markets face the heaviest bond maturities in at least a decade, much of them borrowings to dig their economies out of the worst slump since the Great Depression. According to data compiled by Bloomberg, these governments may need to roll over 51% more debt than in 2020. (…)
Refinancing needs are the biggest in the U.S., with $7.7 trillion of debt coming due, followed by Japan with $2.9 trillion, according to Bloomberg data. China’s tab rises to $577 billion from $345 billion last year. In Europe, Italy has the heaviest bill of $433 billion, followed by France’s $348 billion. Germany has $325 billion due versus $201 billion last year. Not all these maturities will necessarily be extended by fresh borrowings. (…)
The Federal Reserve is on pace to buy nearly half the $2 trillion of net supply TD Securities expects the U.S. government debt to issue this year.
In Europe, the result of central bank bond buying will help create a supply shortfall of 133 billion euros ($164 billion), according to Jefferies International. (…)
Fed’s Evans Says Monetary Policy Will Be Accommodative ‘for a Long Time’ The Chicago Fed president, who will be a voting member of the Fed’s rate-setting board this year, said the central bank’s new inflation framework argues in favor of a long period of low rates.
New York Boosts Minimum Wage and Some Businesses Balk New York state leaders moved ahead with minimum-wage increases over objections from groups who said businesses battered by the coronavirus couldn’t afford the higher labor costs.
New York is gradually raising its minimum wage to $15 an hour, and as of Dec. 31 employers on Long Island and in Westchester County were required to start paying workers at least $14 an hour, up from $13. The minimum rose to $12.50 from $11.80 an hour in the rest of New York state outside New York City, where all employers hit the $15 hourly wage requirement at the end of 2019. (…)
In addition to New York, 19 other states and 32 cities and counties raised their minimum wages Jan. 1, according to a report by the National Employment Law Project, a nonprofit research group that advocates for low-wage workers. The statewide new minimum wages range from $8.75 an hour in Montana to $14 an hour in California.
In New Jersey, the minimum rose to $12 an hour from $11 on Jan. 1. A law signed in 2019 by Gov. Phil Murphy, a Democrat, will gradually increase the state’s minimum wage to $15 an hour for most workers by 2024.
Saudis, Russia at Odds Over Boosting Oil Output OPEC members and a group of crude producers led by Moscow plan to meet again Tuesday to try to decide whether to increase production after talks on Monday ended without a deal.
(…) Last month, they agreed to increase production by 500,000 barrels a day, bringing their net cuts since the start of the pandemic to some 7.2 million barrels a day.
On Monday, they were scheduled to decide whether to continue to raise production or stand pat.
Saudi Arabia and most of the broader alliance backed holding steady for at least another month, delegates said. These countries are concerned a new variant of the Covid-19 virus is threatening a resurgence of the pandemic, while vaccination programs are not progressing as fast as expected. (…)
Moscow, however, pushed for an increase in output by another 500,000 barrels a day, the delegates said. Russia sees oil consumption coming back and is concerned about losing market share to U.S. producers, which are not subject to restrictions, these people said. (…) The group is set to meet again Tuesday, hoping to iron out its differences. (…)
BioNTech warns ‘no data’ to support UK plan to space out Covid shots German manufacturer says vaccine was only tested on basis of two doses 21 days apart
South African Covid Strain Raises Growing Alarm in the U.K.
The new coronavirus strain that emerged in South Africa is even more problematic than a mutated form that prompted new lockdowns across much of the U.K., health authorities said on Monday.
“I’m incredibly worried about the South African variant,” U.K. Health Secretary Matt Hancock said on BBC radio Monday, citing a conversation over the Christmas holiday with his counterpart in South Africa. “One of the reasons they know they’ve got a problem is because, like us, they have an excellent genomic scientific capability to be able to study the details of the virus. And it is even more of a problem than the U.K. new variant.”
The South African variant is driving a surge of infections in the country, and like the U.K. strain, it appears to be more infectious than previous mutations.
To say the South African strain is more problematic than the U.K. variant is “politics rather than science” at this point, said Richard Lessells, an infectious-disease specialist at the University of KwaZulu-Natal. Researchers must first do the experiments necessary to understand the new variants, he said. So far, officials have provided little evidence to support the idea that the South African strain is more problematic than the new one first identified in the U.K., where cases are also surging. (…)
“We’ve got a bit of headroom because the vaccines work, I think, much better than any of us thought they would work,” he said. “We do have some room to maneuver. If they worked 20% less well because of a mutation we’d still have good vaccines.”
Even if the new variants were able to evade the vaccines “it’s perfectly possible” to adapt and make new ones, potentially within six weeks, if necessary, Bell said. “We’re now in a game of cat and mouse. These are not the only two variants we’re going to see.” (…)
South African doctors have seen anecdotal evidence that more young people without pre-existing conditions are becoming severely ill with the new version, Health Minister Zweli Mkhize said last month.
There is no evidence that the South African variant is more transmissible or causes more severe disease than the U.K. variant, Mkhize said in a statement on Dec. 24. The two variants developed independently, and there’s evidence that the U.K. strain predates the South African one, Mkhize said. (…)
As of Dec. 30, the variant had been reported in four other countries. The U.K. variant has been found more widely, with reports spanning 31 other countries, territories and areas across the world.
(Worldometer)Lockdown 3.0 Could See U.K. GDP Contract 4.5% in the First Quarter
Danes Get 20-Year 0% Mortgages
Denmark’s Housing Market at Its Tightest Since Pre-2008 Crisis
Byron Wien and Joe Zidle Announce the Ten Surprises of 2021
- Former President Trump starts his own television network and also plans his 2024 campaign. His lead program is The Chief, in which he weekly interviews heads of state and CEOs with management styles like his own. His virtual interview with Vladimir Putin draws more viewers than any television program in history.
- Despite the hostile rhetoric from both sides during the U.S. presidential campaign, President Biden begins to restore a constructive diplomatic and trade relationship with China. China A shares lead emerging markets higher.
- The success of between five and ten vaccines, together with an improvement in therapeutics, allows the U.S. to return to some form of “normal” by Memorial Day 2021. People are generally required to show proof of vaccination before boarding airplanes and attending theaters, movies, sporting events and other large gatherings. The Summer Olympics, postponed last year, are held in July with spectators allowed to physically attend.
- The Justice Department softens its case against Google and Facebook, persuaded by the argument that the consumer actually benefits from the services provided by these companies. Certain divestitures are proposed and surveillance restrictions are applied, but the broad effort to break them up loses support, except in Europe.
- The economy develops momentum on its own because of pent-up demand, and depressed hospitality and airline stocks become strong performers. Fiscal and monetary policy remain historically accommodative. Nominal economic growth for the full year exceeds 6% and the unemployment rate falls to 5%. We begin the longest economic cycle in history, surpassing the cycle that lasted from 2010 to 2020.
- The Federal Reserve and the Treasury openly embrace Modern Monetary Theory as their accommodative policies continue. As long as growth exceeds the rate of inflation, deficits don’t seem to matter. Because inflation increases modestly, gold rallies and cryptocurrencies gain more respect during the year.
- Even as energy company executives cut estimates for long-term growth, near-term opportunities are increasing. The return to “normal” increases both industrial activity and mobility, and the price of West Texas Intermediate oil rises to $65/bbl. Rig counts increase and energy high yield bonds rally soundly. Energy stocks are among the best performers in 2021.
- The equity market broadens out. Stocks beyond health care and technology participate in the rise in prices. “Risk on” is not without risk and the market corrects almost 20% in the first half, but the S&P 500 trades at 4,500 later in the year. Cyclicals lead defensives, small caps beat large caps and the “K” shaped equity market recovery unwinds. Big cap tech is the source of liquidity, and the stocks are laggards for the year.
- The surge in economic growth causes the 10-year Treasury yield to rise to 2%. The yield curve steepens, but a concomitant increase in inflation keeps real rates near zero. The Fed wants the strength in housing and autos to continue. As a result, it extends the duration of bond purchases in order to prevent higher rates at the long end of the curve from choking off credit to consumers and businesses.
- The slide in the dollar turns around. The post-vaccine strength of the U.S. economy and financial markets attracts investors disenchanted with the rising debt and slower growth of Europe and Japan. Treasurys maintain a positive yield and the carry trade continues.
Distressed debt specialist Howard Marks warns on corporate borrowing burden Investor says even companies that can return to profit may struggle to service their liabilities
(…) “The market is so bifurcated, high relative to historic valuations,” he added. “And bonds [and] credit are offering in general the lowest returns in history.” (…)
NYSE Scraps Plans to Delist Chinese Telecom Stocks The New York Stock Exchange reversed its decision to delist China’s three largest telecommunications companies, after consulting with regulatory authorities about a recent U.S. investment ban. (…) Mr. Chen said the New York delisting situation is still evolving, and it is unclear whether the recent reversal is the final conclusion of the matter. (…)
Amazon, Berkshire Hathaway, JPMorgan End Health-Care Venture Haven, which had targeted innovations in areas such as primary care, insurance coverage and prescription drug costs, is shutting down.
(…) The joint venture, which was announced in 2018 with expectations high enough to push down major insurers’ shares, will cease operations in February without having achieved those aims.
Haven’s transformative ambitions proved too difficult to achieve, according to people familiar with the matter. Its shutdown attests to the challenges of making sweeping changes to the U.S. health-care system and of bringing innovations to hundreds of thousands of employees around the country working at different companies, the people said. (…)
Haven’s setup proved unwieldy for solving the three sprawling companies’ problems, people familiar with the matter said. Different employee bases and locations led to different priorities, and each employer’s existing health-care system required different fixes, according to one of the people. After Haven struggled to implement any changes, the three companies opted to close it down, this person said. (…)
China Sentences Ex-Finance Chief to Death on Corruption Charge
(…) Capital punishment is unusual for corruption in China, though a former vice mayor in the Shanxi province was sentenced to death in 2018. The move underscores the ruling Communist Party’s increasingly tough stance on corruption among government cadres and corporate executives, which has seen more than 1.5 million government officials punished. In 2016, China raised the threshold for capital punishment related to corruption to 3 million yuan from 100,000 yuan, but the penalty has seldom been used. (…)