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Will this week’s releases impact the Fed’s March FOMC meeting?

Part 2
Will this week’s releases impact the Fed’s March FOMC meeting? (Part 2 of 12)

Auto sales: An important bellwether for consumer confidence

Monthly auto sales

Light vehicle auto sales for February were released on Monday, March 3, by the Bureau of Economic Analysis. This reading includes both domestic and imports. Domestic sales comprise vehicles produced in the U.S., Canada, and Mexico. Imports are U.S. sales of vehicles manufactured outside the countries mentioned above.

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Vehicle sales are usually considered a bellwether for consumer sentiment and can also indicate the start or end of business cycles. An increase in consumer spending on discretionary big-ticket items like cars means the economy is beginning to pick up.

What did January’s reading indicate?

The light vehicle annualized selling pace came in at 15.2 million vehicles in January. This was down from November and December’s readings of 16.3 million vehicles and 15.3 million vehicles, respectively.

Both Ford (F) and General Motors (GM) had reported lower monthly sales with cars and light vehicles numbers dropping 7% for Ford (F) and 12% for General Motors (GM). Unusually cold weather was responsible for the poor vehicle numbers recorded in January. February has started with similar weather patterns, so the bounce in February may not be as pronounced—if there is a bounce at all.

Temporary break in uptrend

Vehicle sales had begun to pick up pace in the last quarter of 2013, coming in at a seasonally adjusted annual rate of 16.3 million vehicles in November. February’s numbers will provide a more accurate picture of whether this trend will continue this year given that the inclement weather in December and January may have distorted the trend temporarily.

What do auto sales mean for fixed income markets?

An increase in vehicle sales in February would imply the economy is expanding. Other things remaining constant, this will mean the Fed will continue with its tapering of quantitative easing, which means gradually ceasing its purchase of agency mortgage-backed securities and longer-term Treasuries. This will cause money supply in the economy to stop expanding and interest rates to rise, which will reduce prices of fixed income securities and raise rates.

To read about other indicators that cover both manufacturing and non-manufacturing industries in the U.S., move on to Part 3 of this series.

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