Auto sales stalling for the fourth month on the trot
This is a quick note on auto sales since I have flagged them as a potential canary in the coalmine for US consumers. April auto sales are expected to be down when they are reported today. That would be the fourth consecutive month of down sales. And this is because demand is clearly weakening, causing inventories to pile up. GM, for example, ended March with a 98-day supply versus 71 days at the end of March 2016.
Why this matters. The decline in sales in the auto sector looks like it will continue. This will eventually cause automakers to cut production to sell off existing inventory. From a credit perspective, the associated discounting by auto makers and rising delinquencies, will pressure auto asset backed-securities. From an economic perspective, lower spending on autos already hurt first quarter US GDP growth. The coming slowdown in production will dent GDP growth further in the coming quarters.
Right now the Atlanta Fed’s GDPNow model shows Q2 growth projected at a monster 4.3%. I expect that number to remain high, but to decline, in part because of the auto sector. Consensus estimates for Q2 GDP growth are running at 2.7%.
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