Lots of baby steps forward in the U.S. are starting to yield real progress

0 1930 Market Intelligence

Alex Carrick

Alex Carrick is Chief Economist for Reed Construction Data. He specializes in economic forecasting and statistical services.


Better news on the U.S. economy has been accumulating of late. This story sets out several examples, covering the stock markets, the PMI of the ISM and motor vehicle sales within the context of overall retail spending.

Better news on the U.S. economy has been accumulating of late. For example, in the early days of December, the three major U.S. stock market indices reached their highest levels in more than two years. One has to look back to September 2008 to see similar index values for Dow Jones Industrials and the S&P 500. NASDAQ hasn’t been as high since December 2007. Profit strength (+28% year over year in the third quarter), achieved through productivity advances, has been the major cause of equity price climbs in the U.S. The Toronto Stock Exchange has improved to a similar degree in Canada, but the spur has been more closely tied to the improvement in commodity prices. For the 16th consecutive month, the purchasing managers’ index of the U.S. Institute of Supply Management (ISM) exceeded 50% in November. The PMI is a composite of five diffusion indices (i.e., positive minus negative survey responses) on such matters as production and employment for the manufacturing industry. A reading above 42% for the PMI indicates an economy that is expanding. Manufacturing requires a reading above 50% to be in an upswing. According to the ISM, 56.6% for the PMI corresponds with a real (inflation-adjusted) gross domestic product (GDP) growth rate of 4.9%. Many analysts key on consumer spending as the most important part of the economy if the recovery is to forge ahead. Personal consumption expenditures comprise 70% of U.S. gross domestic product (GDP). And nearly 20% of consumer spending originates with the auto sector. Total car and truck sales in the U.S. were 12.26 million units annualized in both November and October, according to Autodata Corp. This was their highest level since August 2009, when there was a spike due to the cash-for-clunkers program. During the recession, the annualized monthly sales volume dropped down to around 10 million units. In light vehicle sales (i.e., passenger cars and small trucks), the 10.4 million units sold in the U.S. in the first 11 months of this year has already surpassed the annual total for last year. The improvement in sales by the Detroit Three has been particularly notable. Ford’s light vehicle sales to date this year versus the same January to November period of last year were +21.1%. Chrysler’s sales were +16.5% and GM’s +7.0%. The GM figure however, is before omitting brands that were sold last year and have since been relinquished. On a same brand basis, GM’s sales gain has been comparable to the other two majors. At this time of volatility in currency markets, it is interesting to also monitor certain foreign-owned brands. For example, Volkswagen (+21.3%) has led the sales increase in the United States by German-owned manufacturers. Daimler has recorded a 12.2% gain and BMW a 9.3% increase. As the value of the U.S. dollar picks up relative to the Euro in the fallout from sovereign debt problems overseas, the revenue from U.S. sales that is sent back to headquarters in Germany gets a currency boost. A decline in value of the Euro also makes it easier for European car companies to keep their prices competitive. American motor vehicle sales are important for Canada because an outsized proportion of Canadian production is destined for the U.S. market. Canadian assembly plants roll out about double the number of cars, vans and trucks that are sold domestically. As for U.S. consumer spending overall, perhaps the most interesting phrase that has been appearing in the business press lately with respect to U.S. economic prospects is “frugality fatigue.” Some analysts believe consumers may be growing weary of belt tightening and are about to indulge their whims to some greater degree. A look at the pattern of U.S. retail sales suggests that the talk about thrift on the part of U.S. consumers may have been overblown regardless. Since the bottom for U.S. retail sales in late-2008/early-2009, the slope of the total retail sales curve has been every bit as steep as it was before the recession. Total U.S. retail sales now stand only 3% below what they were before the big dip that began in December 2007. Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.

by Alex Carrick

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