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September 2013

Specialists Expect US Vehicle Sales to Fall Significantly in September

Automakers will release September vehicle sales next Tuesday (October 1st) and currently, analysts estimate sales (Seasonally Adjusted at Annualized Rate) to fall significantly from August.


Here are some forecasts from specialists:


1/ Edmunds: Calendar Abnormality Will Snap 27-Month Winning Streak for Auto Industry in September, Says predicts that 1,143,968 new cars and trucks will be sold in the U.S. in September for an estimated Seasonally Adjusted Annual Rate (SAAR) of 15.3 million. The projected sales will be a 23.8 percent decrease from August 2013, and a 3.7 percent decrease from September 2012.
“It looks like sales took a big hit in September, but the monthly SAAR is up year over year, and the industry is still selling more cars per day than it did last year,” says Senior Analyst Jessica Caldwell. “Many of the fundamentals that have driven strong car sales over the last year are still in place, and we can expect them to contribute to a solid final quarter to close out 2013.”


2/ TrueCar: September 2013 New Car Sales Expected to Be Down 4.4 Percent According to TrueCar; September 2013 SAAR at 15.4M


For September 2013, new light vehicle sales in the U.S. (including fleet) is expected to be 1,131,333 units, down 4.4 percent from September 2012 and also down 24.5% percent from August 2013 (on an unadjusted basis – September 2013 had 23 sales days, compared to 25 in September 2012).
The September 2013 forecast translates into a Seasonally Adjusted Annualized Rate (“SAAR”) of 15.4 million new car sales, down about four percent from August 2013 and up about four percent over September 2012.
“Labor Day sales clearly pulled ahead from September volume and resulted in a lackluster month. The uncertainty in the financial markets also finally caught up with auto sales, causing some hesitation for big ticket item purchases,” said Jesse Toprak, senior analyst for


3/ JD Power-LMC Automotive: JD Power-LMC Automotive say brisk US auto sales pace slowing

JD Power and LMC Automotive said “the new vehicle sales pace in September has slowed from its sprint in recent months,” and sees the month’s annualized selling rate at 15.2 million vehicles.
August’s annualized sales rate was 16.1 million vehicles.


4/ Wards: Q3 Strong Despite Expected September Sales Drop

U.S. automakers should sell 1.14 million light vehicles in September, according to a new WardsAuto forecast. Pull-ahead sales from the Labor Day weekend, counted in the August sales report, are a large factor in the forecast, which calls for the monthly SAAR to fall to 15.3 million units just a month after breaking the 16 million-unit mark.


5/ Kelley Blue Book: September Auto Sales Expected To Dip 2 Percent, According To Kelley Blue Book

In September 2013, new light-vehicle sales, including fleet, are expected to hit 1,167,000 units, down 1.8 percent from September 2012 and down 22.2 percent from August 2013.
The seasonally adjusted annual rate (SAAR) for September 2013 is estimated to be 15.7 million, up from 14.7 million in September 2012 and down from 16.0 million in August 2013.
“September 2013 new-vehicle sales represent the first year-over-year drop since May 2011, due to slower retail sales, two fewer sales days in the month, and this year’s Labor Day sales included in August 2013 totals,” said Alec Gutierrez, senior analyst at Kelley Blue Book. “Despite the cool down this month, Kelley Blue Book forecasts sales will remain on track to exceed 15.6 million units in 2013 because of strong product introductions from automakers.”

My view
According to the specialists, new auto sales could fall significantly (5% in the worst case) in September. It means that personal consumption expenditures should be under pressure and its contribution to GDP would be less than expected in Q3. As a consequence, the Federal Reserve will not be obliged to start “tapering” at the end of October.

Fed’s Lacker Says Current Fed Policy Raised Likelihood of Mistakes

Richmond Federal Reserve Bank President Jeffrey Lacker said Thursday that the combination of the continued use of unconventional measures, a very large balance sheet and forward guidance have increased chances for mistakes when the time comes to begin withdrawing monetary stimulus.


Highlights from his speech at the Swedbank Economic Outlook Seminar in Stockholm:


The Federal Reserve has pursued a number of unconventional policies since the financial crisis of 2007–2008.
It lowered the short-term interest rate to near zero in 2008, where it remains today. In addition, it has attempted to influence longer-term interest rates through two channels: “forward guidance” announcements stating that monetary policy will remain accommodative until labor market conditions improve and large-scale long-term asset purchases, including mortgage-backed securities, or MBS.
The Fed will face risks as it pursues its “exit strategy” from recent unconventional policies. The combination of a very large balance sheet and forward guidance raises the potential of a timing error when it becomes appropriate to raise rates, as well as the consequences of such an error. In addition, by purchasing MBS, the Fed has targeted a specific private sector asset and engaged in credit policy. Such actions could invite pleading from other sectors and entangle the Fed in distributional politics and threaten its independence.


Note that all Fed members’ speeches ncerning QE and economic activity since the last FOMC meeting (September 17-18) are available here.

IMF Urges Eurozone to Set Up a Joint Budget to Avoid Economic Shocks

According to a report released yesterday by IMF, Eurozone should set up a joint budget to help avoid economic shocks and to prevent weak members (from Ireland to Cyprus) from experiencing severe recessions.


The report notes that the joint budget could be worth up to 2.5 percent of the bloc’s output of about 10 trillion euros ($13 trillion), or about 200 billion euros. However, to make this plan viable, Europeans should agree to give up national sovereignty by affecting more money and power to joint institution.


It’s clear that the report’s proposals go far beyond what is currently envisioned in Europe and would face political and legal hurdles. Indeed, stronger economies, especially Germany, are likely to reject them as an introduction through the backdoor of permanent transfer payments to financially weaker countries. The concern remains that countries benefiting from the payments would be less willing to make unpopular reforms.


Some extracts from IMF report:


“Addressing gaps in EMU architecture could help prevent crises of such magnitude in the future, while supporting current crisis resolution efforts.”
“Such a fund would collect revenues from euro area members at all times and make transfers to countries when they experience negative shocks”
“Yet, political backing for a clear roadmap remains elusive, with views on the contours of a fiscal union differing widely among euro area members”


Fiscal Uncertainties Are Weighing on Companies’ Expectations

Last Friday, the House of Representatives voted (203-189) to approve a stopgap spending bill to fund the government through mid-December. Indeed, in order to extend the current government spending at the current rate and to avoid a “government shutdown” after September 30, Republicans-controlled House chose to attach a provision to dismantle President Obama’s health care law “Obamacare”.


However, the provision has no chance of approval as it will face a veto from President Obama in the Democrats-controlled Senate. Today, the Senate should begin to debate on the spending bill where Senate Majority leader Reid (D-NV) will reject the provision and will send the bill back to the House.


Nevertheless, even if Democrats and Republicans find a compromise on a temporary bill until mid-December, they will need to specify the 2014 budget. The fact is Democrats want to spend $1,058 billion for fiscal 2014 while the budget control acts sets spending caps at $967 billion ($109 billion of sequestration). Some want to meet the spending caps by allocating more on defense and less to civilian programs. Finally, some Republicans are asking for larger cuts to entitlement programs, to which Obama is unlikely to agree. The only good news is that, in the worse case, sequestration will not happen until January (after Congress holidays).


Moreover, concerning fiscal issues, some press reports suggest that House of Representatives will also try to vote on debt limit this week as the Treasury Department predicts the debt ceiling will be reached by mid-October. The legislation would seek to increase the debt ceiling until Dec-2014 and likely include approving the Keystone XL pipeline, reforming the corporate and households’ tax code, delaying “Obamacare” and eliminating the Consumer Financial Protection Board (CFPB). Remind that if Congress does not reach a deal to raise the debt limit, a default and/or debt downgrade could ensue.


Debates are already weighting on companies’ expectations. The BRT’s (Business RoundTable) third quarter CEO Economic Outlook Survey, released on September 18, show slightly more optimism about the economy with lower expectations for sales and capital investment. Note that the composite index fell to its lowest level since 4Q 2012.


 Source: Business RoundTable


 Source: Business RoundTable


The survey which included an additional question concerning the effects of political stelmate show that 50% of respondents indicated that the ongoing disagreement in Washington is having a negative impact on their plans for hiring additional employees over the next 6 months.


In this context, my view remains that growth could be sluggish at least until Congress validates the stopgap bill and raises the debt ceiling (mid-October/beginning of November). As a consequence, Fed policy will remain accommodative so that “tapering” will not start before December.