The DOW plunged more than 400 points at Tuesday’s opening, because retail sales were “weaker”, per the consensus estimate of pundits. But it was in large part because of lower new car sales, due to a shortage of computer chips.
In fact, the demand for both new and used cars is soaring, and retail sales are holdingup. The average new car price hit a record $38,255 in May, according to JD Power, up 12 percent from the same period a year ago, and the cost of used cars and trucks has soared by 32 percent in the first six months of 2021. By contrast, their prices fell by an average of 0.6 percent a year from 2009 to 2019.which is a better way to look at sales activity, says MarketWatch.
And if the pundits looked just a bit further, they would know that auto manufactures are racing to meet the demand by not taking the normal summer factory shutdown to retool for new models. So it is really good news that demand is running so high for autos, and restaurants and gasoline products, as consumers are traveling more in the summer months.
Overall U.S. industrial production rose a seasonally adjusted 0.9 percent in July, the Federal Reserve reported Tuesday, and manufacturing activity alone rose 1.4 percent in July, boosted by an 11.2 percent jump in output of those motor vehicles and parts.
Even then auto production remains about 3.5 percent below its recent peak in January. It will take several months to play catchup, when additional computer chips used in autos are manufactured. US chip manufacturers such as Intel are part of the chip shortage caught by the surprise surge in demand.
But as the long-term FRED graph shows, retail sales are still far above the historical five percent annual increase.
“Advance estimates of U.S. retail and food services sales for July 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $617.7 billion, a decrease of 1.1 percent from the previous month, but 15.8 percent above July 2020, reported the US Census Bureau.
So market investors in particular should take a step back from the unrelenting news headlines that react to every piece of bad and good news without looking between the lines.
The U.S. economy grew at a blistering pace in the spring and repaired most of the damage caused by the pandemic thanks to widespread coronavirus vaccinations and a nearly full reopening of the economy, as I said recently.
The Q2 GDP report verifies that the American economy is capable of easily accomodating the Biden administration’s proposed infrastructure and American Family plan spending of some $4 trillion in additonal government investments should they be passed in their present form.
We still cannot ignore the soaring hospitalizations from the Delta variant that will slow down some economic activity through the fall. We won’t know until school openings how the Delta variant will affect school children and teaching staff, for starters. And many essential workers are hanging back because of the variant’s surge as well.
The CDC says, “The current 7-day moving average of daily new cases (114,190) increased 18.4% compared with the previous 7-day moving average (96,454). The current 7-day moving average is 66.3% higher compared to the peak observed on July 20, 2020 (68,685). (But) The current 7-day moving average is 65.0% lower than the peak observed on January 10, 2021 (254,023).”
So we can only hope that the latest rise in vaccinations and addition of a third booster shot for the most vulnerable that is already widely available in pharmacies will prevent further damage.
Harlan Green © 2021
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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