Friday, October 7, 2016

Motor Vehicle Sales Boost Retail, Manufacturing

Financial FAQs

One of the first hard indications on the September economy is strongly positive as overall unit vehicle sales surged 4.7 percent to a 17.7 million annualized rate. This will boost the vehicle component of the September retail sales report and also will give a lift to third-quarter GDP estimates, which are currently in the mid-two percent range.

Strength is centered in North American-made models where the rate rose 6.0 percent to 14.2 million for domestic sales. The strength ultimately reflects the health of the jobs market and will likely raise talk of strength in Friday's employment report.

And initial weekly jobless claims keep moving lower in what is definitive evidence of labor market strength. Initial claims in the October 1 week fell 5,000 to 249,000, breaking the 250,000 barrier for the second time this year, though the unemployment rate rose slightly to 5.0 percent and 156,000 new payroll jobs were created in September, according to the Labor Dept.

The 4-week average, 2,500 lower at 253,500, is down for a very convincing 7th week in a row, says Calculated Risk. Continuing claims are likewise moving lower, down 6,000 to 2.058 million in lagging data for the September 24 week. There are no special factors in today's report, one where all readings are at or near historic lows.

Both U.S. manufacturing and non-manufacturing activity picked up as well. largely due to the strength in vehicle sales, which means retail sales overall are healthy. ISM's manufacturing September index bounced more than 2 points higher to a much better-than-expected 51.5. New orders are the most important of all readings and they lead the September report, rising 6 points to a very solid 55.1.

 Export orders are also respectable and steady at 52.0 while the draw in total backlog orders slowed, with this index up 4 points and nearly hitting breakeven 50 at 49.5. Production also improved in the month, up 1.4 points to 52.8, as did employment which, at 49.7, is also nearly at 50. This is a positive report, pointing to rising though no more than moderate strength for the nation's factory sector.

 The ISM non-manufacturing composite index shot up to 57.1 from August's recovery low of 51.4 which now looks like a very odd outlier for this report which otherwise has been consistently strong this year. And new orders are especially strong, up nearly 9 points to 60.0 which points to brisk activity for other readings in the months ahead. Employment is also a very solid plus in the report, up 6.5 points to 57.2 which is the strongest rate of growth since September last year.

This is while the third estimate of Q2 Gross Domestic Product inched up to 1.4 percent from the prior 1.2 percent estimate, but Q3 should begin to show some strength, after 7 consecutive quarters of subpar growth.

Could it reach 3 percent?  Only if the Fed won't raise interest rates at all this year, as it will crimp manufacturing, which relies on lower export prices, which relies on a cheaper US dollar, which relies on the current interest rate low.

Harlan Green © 2016

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