The Janet Yellen speech and the key economic indicator releases (Part 4 of 8)
Motor vehicle sales
The motor vehicle sales statistics are released monthly by auto manufacturers and Autodata Corporation. Individual manufacturers usually report sales on the first business day of the month. Motor vehicle sales are good indicators of trends in consumer spending and are often considered a leading indicator at business cycle turning points.
Unit sales of motor vehicles include sales of autos produced in the U.S., Canada, and Mexico, as well as sales of vehicles sold in the U.S. but produced elsewhere.
With the sales for the months of January and February being held down by bad weather, March saw the unit vehicle sales surge by 6.9% to a 16.4 million units on a trailing 12-month (or TTM) basis. Since September, sales have averaged 15.5 million units on TTM basis. Sales of vehicles produced domestically were especially strong, rising 7.1% to a 13.0 million units on TTM basis, while sales of imported vehicles rose 6.3% to 3.4 million units on TTM basis.
When the economy is growing and the weather conditions are favorable, motor vehicle sales do well. For investors in ETFs, the performances of popular exchange-traded funds (or ETFs) like the SPDR S&P 500 ETF (SPY), and the iShares S&P 100 ETF (OEF), which track large-cap equities of companies like Apple (AAPL) and Exxon Mobil Corporation (XOM), serves as a good indicator of the economic growth. The First Trust NASDAQ Global Auto Index Fund (CARZ) tracks the performance of the largest and most liquid companies engaged in manufacturing of automobiles.
Since motor vehicle sales is an important element of consumer spending, market participants watch this closely to get a handle on the direction of the economy. The pattern of consumption spending is one of the foremost influences on stock and bond markets. Consumer spending, which is largely driven by strong economic growth translates to healthy corporate profits and higher stock prices. The bond market focus is on whether economic growth goes overboard and leads to inflation.
Hence, an increase in motor vehicle sales is a sign of increased consumer spending, indicating economic growth. The stock markets take this as a positive sign, while the bond market keeps a tab on whether this growth is building inflationary pressures, which may turn out to be negative for the bond markets.
While the improved weather conditions are favoring motor vehicle sales, an Easter shift is distorting retail sales figures; find out how in the next part of this series.
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