Apparently, I threw one faithful reader for a loop yesterday when I agreed with Nobel Prize-winning economist Robert Shiller’s assessment that the U.S. economy “is still weak and vulnerable.”
Here’s what Rick H. wrote in to say: “Is the always optimistic, super bullish and esteemed Louis Basenese suddenly becoming more pragmatic, perhaps even pessimistic? Say it ain’t so!”
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Well, it ain’t so!
A bit of clarification is in order: I agree with Shiller that the U.S. economy is vulnerable, not that it’s weak.
I mean, with so much debt and money printing, there’s a lot that could go wrong with Bernanke’s grand monetary experiment.
Not to mention that politicians still don’t seem to care about holding the economy hostage (again and again) as they hash out their ideological differences.
Both conditions certainly make the economy vulnerable. However, that doesn’t mean we’re on the brink of another collapse or one step away from being put on life support.
To the contrary, there are several bastions of strength that suggest the U.S. economy is becoming less and less vulnerable.
Just ask Nomura’s strategist, Michael Kurtz. In his outlook for 2014, titled “The End of the End of the World,” he notes, “The Global Financial Crisis is over. Not that clocks have simply rewound to 2006, but: The U.S. property market has been recovering for no less than 20 months, the U.S. household balance sheet is largely repaired and the U.S.-China current account imbalance [is now] vastly reduced.”
Consumers Step on the Gas
With the holiday shopping season underway, everyone is laser-focused on consumer spending habits. After all, the consumer accounts for a sizeable 42% of U.S. GDP.
But holiday shopping is a one-off event. It’s dangerous to make sweeping assumptions about the health of the consumer – and, in turn, the economy – based on a brief spurt of activity.
It’s much more instructive to track trends over longer periods of time.
Like automobile and light truck sales, for instance. Why? The answer can be found on any local radio or television ad. As they all say, “If you’ve got a job, you can buy a car.” And if you don’t, well . . . you can’t.
So car and truck sales provide insights into the health of the labor market. I think we can all agree – a stronger labor market makes for a stronger economy.
As you can see in this chart, auto sales are actually a leading indicator. They keep climbing as more and more people get back to work.
Some will try to discount this connection, arguing that the official unemployment rate, known as U-3 unemployment, conveniently excludes three groups of people. I agree with the knock against U-3 and have said as much before.
Rest assured, though, that this long-term relationship between auto sales and unemployment still holds true if we use the broadest and most inclusive measure – U-6 employment. The reason I used U-3 in the graph is because the data go back further.
With that being said, let’s get to the most important thing:
Throughout the day yesterday, automakers reported November monthly sales. There’s no way to interpret the data as anything but bullish.
- Land Rover reported its best November ever.
- Jaguar’s sales more than doubled year-over-year.
- Mitsubishi reported 6,071 deliveries, up 62.3% from November 2012’s results.
- South Korean automaker, Hyundai, reported record sales volume – delivering 56,005 cars.
- And daily sales volumes in November at Chrysler, Ford and GM were up 7.4%, collectively.
All told, WardsAuto projects that total sales for November will check in at a seasonally adjusted rate close to 16.3 million units.
To put that into perspective, October light auto sales came in at a seasonally adjusted rate of only 15.17 million units. So we’re talking about a sharp acceleration in only one month’s time.
Come Friday morning, when the Bureau of Labor Statistics releases its November jobs report, I suspect that we’ll see a steady improvement, too.
Bottom line: By no means am I predicting boom times ahead for the U.S. economy. But any talk about pervasive weakness is sorely misplaced. In fact, the latest auto sales data points to a strengthening economy, not a deteriorating one.
Ahead of the tape,