THE BAD NEWS IS STRONG CAR SALES / THE WALL STREET JOURNAL

The Bad News in Strong Car Sales

Impressive figures from the auto industry weaken the case for caution from the Fed

By Justin Lahart     

 

 

Investors hoping that unsettled markets will persuade the Federal Reserve to hold off on raising short-term interest rates later this month aren’t getting any help from U.S. consumers.

Weak manufacturing figures from China on Tuesday and a decline in South Korean exports that underscored how China’s woes are spreading to other parts of Asia rattled markets. The Dow Jones Industrial Average fell nearly 470 points and has more than halved last week’s snapback rally.

Yet August auto-sales figures suggested last month’s stock-market tumult didn’t weigh too heavily on Americans’ spending decisions. Auto makers’ reports pointed to sales of 17.7 million light vehicles last month, at a seasonally adjusted, annual rate, according to WardsAuto.

That was the strongest pace since July 2005 and far better than the 17.2 million economists polled by The Wall Street Journal were looking for. Impressively, the figures were strong despite the fact Labor Day sales, which are included in August figures most years, got pushed into September.

                   
Vehicles count as the priciest retail purchases most households make, and they often require financing. So the strength of sales over the past several months points to improving confidence among consumers on their ability to meet payments. The same goes for lenders. 
       

Moreover, cars aren’t the only big-ticket items Americans are ponying up for. Last Friday’s report on consumer spending showed that overall consumer spending was up 3.2% from a year earlier in the three months that ended in July, adjusting for inflation. But sales of major household appliances were up 7.4%, and sales of sports and recreational vehicles, such as motorcycles, boats and campers, were up 7.4%.

If the Fed has a reason to worry about the selloff in stocks, it is that it will weigh on the confidence of consumers and companies, and therefore the economy. August car sales suggest that, as far as consumers are concerned, this hasn’t happened.

Indeed, despite Tuesday’s stock selloff, federal-funds futures showed only a slight decline in the chances of the Fed raising rates later this month.

This isn’t to say that, if markets get into much worse trouble, the Fed will still raise rates when it meets later this month. It won’t. But, as of Tuesday, the Fed should be more impressed by consumers’ ability to shake off stock declines.