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Auto Sales Should Get a Boost from New Jobs in the US Economy

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Auto sales

On June 5, the BLS (U.S. Bureau of Labor Statistics) released the employment situation summary for May. The NFP (non-farm payroll) shows the number of jobs added or lost each month.

The NFP employment figure increased by 280,000, as you can see in the chart above. The increase in payrolls far exceeded the median market expectation of 225,000.

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Breakdown by sector

Job additions in high-paying professional and business services were strong. This sector added 63,000 jobs in May. The leisure and hospitality sector was the other major contributor to payrolls. It added 57,000 jobs in May after a flat reading in the previous two months.

The healthcare sector also added 47,000 jobs in May. Meanwhile, the employment situation in the mining (XME) sector continues to trend downward. This sector saw a decline of 17,000 jobs in May, taking the year-to-date losses to 68,000. The mining sector, which includes oil and gas, has been reeling from the impact of lower commodity prices.

A plus for automobile companies

First-time car buyers are among the most important customer segment for automobile companies including Toyota Motor (TM) and General Motors (GM).

Through its financing arm, Ford (F) has an incentive program aimed at first-time car buyers. New job additions mean that a lot of fresh graduates are entering the job market. As the job market improves for younger adults, they may contemplate buying a vehicle for themselves. This bodes well for future vehicle sales.

Ford currently forms 2.5% of the Consumer Discretionary Select Sector SPDR Fund (XLY).

At the same time, the positive employment report raises fears of a sooner-than-expected rate hike. In the next part of this series, we’ll discuss the implications of the impending rate hike on the automobile sector.

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