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April Auto Sales Should Help Quell Fears on 2nd Quarter Growth

April's auto sales, combined with the ISM report on manufacturing and data on construction spending, should help allay some of the concern over growth slowing in the second quarter.

While sales fell at General Motors and Ford, they rose sharply for Toyota, Chrysler and Volkswagen. And the raw numbers reported by the car companies hid some strength. There were 24 selling days in April 2012, compared with 27 in April 2011. But most companies simply gave out the raw number of cars they sold in those 24 days. Toyota reported that its sales were up 11.1 percent in the month. But based on a daily selling rate (DSR) basis — i.e., the number of cars sold each day the dealers were open — Toyota's sales rose 25.5 percent in April 2012 from April 2011. Indeed, it looks like car sales are strengthening, not weakening. Things have been so good in the first four months that "GM is increasing its full-year light vehicle sales forecast to 14.0 million — 14.5 million units from 13.5 million — 14.0 million units."

It may not seem worth noting, but rising car sales are good for the economy for a host of reasons. As Joe Weisenthal of BusinessInsider shows, there's solid correlation between rising auto sales and a declining unemployment rate. Lots of cars are imported to the U.S., but a rising proportion are made at home. VW said it sold 10,096 Passats in the U.S. in April, all of which were made in Chattanooga, Tennessee. When sales rise, production tends to follow. And that means more work for those up and down the supply chain, as well as in the services surrounding new car sales— insurers, auto financing companies, dealerships. (Ford just added a third shift at its engine plant in Cleveland to make fuel-efficient engines.)

The rising car sales also bode well for retail sales, which is one of the most important drivers of economic growth in the U.S. In addition to being the largest manufacturing sector in the U.S., autos are also the largest retail sector. Go look at retail sales data. In February, the most recent month for which data is available, new car dealers accounted for about 13.8 percent of total retail sales. Now, for all of 2011, car sales were 12.8 million. So an increase to 14.25 million for 2012, the midpoint of GM's current forecast, would represent an 11.3 percent gain. Through the first three months of 2012, sales at motor vehicle and parts dealers were up 8.7 percent from the first three months of 2011. Car sales are helping to drive retail sales.

There's another way in which higher auto sales strengthen the economy. There's been a quiet revolution in fuel efficiency over the past several years. The typical car in the U.S. is several years old. So it's likely that people are really trading in and trading up. Cars sold in the U.S. in 2011 got an average of 33.8 miles per gallon, up from 29.5 in 2004 (14.6 percent).

As a look at Hybridcars.com reveals, consumer can choose from a huge array of gas-sipping vehicles: hybrids, plug-in hybrids, electric cars, clean-diesel cars. And they are slowly gaining market share. Toyota sold 32,000 hybrids in April. More significantly, many entry-level vehicles sport mileage numbers that rival hybrids. General Motors sold 1,462 Chevy Volts in April, but it also sold 18,256 Chevy Cruzes in the month (the Eco version of the Cruze gets 42 mpg on the highway). Ford sold 21,610 Ford Fusions, which get about 29 mpg. So every week, about 300,000 new cars hit the road that generally go farther on a mile of gas than did the vehicles they replaced. That means their owners are less impacted by expensive gas. The Energy Information Administration says that demand for gas in the driving season is likely to fall again this year to the lowest level since 2001, even though the economy is continuing to expand.

Daniel Gross is economics editor at Yahoo! Finance.

Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com.

His book, Better, Stronger, Faster: The Myth of American Decline and the Rise of a New Economy, will be published by the Free Press on May 8.