Best economic news in months

The major auto makers today announced sales results for the month of March (as compared to one year ago) and the data are very encouraging:

• Nissan…up 43%
• Toyota…up 41%
• Ford…up 40%
• Honda…up 22%
• GM…up 21%
• Hyundai…up 15%

Some car companies posted drops so the overall rise was tempered slightly, but still strong, up 25% over one year ago.

Analysis: Folks, this is the strongest piece of economic data in many months.  Yes, GDP was up strongly in the 4th Quarter, but most of that was the result of a one-time inventory re-stocking done by U.S. businesses in anticipation of a stronger Christmas 2009 than 2008.  The primary reason that this data is so important is that cars are not typically purchased using cash, but with credit.  Because interest payments are obligations that consumers have to pay, for consumers to be willing to take on additional debt means that they are getting more comfortable with the state of the economy.  The car data also mean that credit markets for smaller sized debt-financed purchases are starting to thaw.

Importantly, the typical trend in a recession is that consumers will continue to drive their old cars and fix them as needed, rather than buy a new car.  So the surge in car sales means that consumers must be seeing light at the end of the tunnel.  Also, unlike the housing market, there are not great big tax-incentives to purchase cars.  So this demand is especially robust.

Mitigating against too much enthusiasm is that the March auto manufacturing data are being compared to super depressed car sales figures of one year ago.  Additionally, many auto makers are cranking up the purchase incentives.  However, consumers do have free will and they clearly are starting to feel better about things, as indicated by their car purchases.

Importance grade: 9; this figure is the first in many months that has caught my attention such that I am re-evaluating my recently bearish outlook on the economy.  In the next several weeks I will be carefully scrutinizing data to see if there is an indication of economic movement upward.

Jason