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Government Shutdown

Specialists Expect US Vehicle Sales to Rebound in October

Automakers will release October vehicle sales next Friday (November 1st) and currently, analysts estimate sales (Seasonally Adjusted at Annualized Rate) to rebound from September.

 

Here are some forecasts from specialists:

 

1/ Edmunds: October Auto Sales Keep Pace Despite Threat from Government Shutdown, Says Edmunds.com

 

Edmunds.com, the premier resource for car shopping and automotive information, forecasts that 1,229,860 new cars and trucks will be sold in the U.S. in October for an estimated Seasonally Adjusted Annual Rate (SAAR) of 15.5 million. The projected sales will be an 8.2 percent increase from September 2013, and a 12.7 percent increase from October 2012.
 
“It looks like the government shutdown ended just in the nick of time,” says Edmunds.com Senior Analyst Jessica Caldwell. “The week-by-week data suggests that consumers started to get jittery by the middle of the month. But with the government back to work, most lost sales should be made up in the latter half of the month, and the industry’s momentum will continue the pace it enjoyed before the disruption in Washington.”

 

2/ JD Power-LMC Automotive: Government Shutdown Curbs New-Vehicle Sales on East Coastg
 

Although the 16-day partial U.S. government shutdown curtailed new-vehicle sales in the first half of October, demand picked up during the third week, according to a monthly auto sales forecast update from J.D. Power and partner LMC Automotive. Total new-vehicle sales in October 2013 are expected to increase 8% from October 2012, when selling-day adjusted.
 
October sales are projected to reach nearly 1.22 million units, up from 1.09 million unit sales in the same month of 2012. That’s equal to a 15.4 million-unit seasonally adjusted annual selling rate, or SAAR, which is much stronger than last October’s 14.2 million-unit pace. It’s also slightly ahead of the selling pace in September 2013.

 

3/ Wards: October Sales Forecast Reflects Modest Impact from Government Shutdown
 

U.S. automakers should sell 1.22 million light vehicles in October, according to a new WardsAuto forecast. The effect of a federal government shutdown in the middle of the month likely was offset to a large degree by increased fleet sales, resulting in projected daily deliveries of 45,137 units over 27 selling days. That would be a 7.9% improvement on year-ago (26 days) but an 8.4% decline from September (23 days).

 

4/ Kelley Blue Book: October New-Car Sales Expected To Jump 12 Percent, According To Kelley Blue Book
 

In October, new light-vehicle sales, including fleet, are expected to hit 1,220,000 units, up 11.7 percent from October 2012 and up 7.4 percent from September 2013.
 
The seasonally adjusted annual rate (SAAR) for October 2013 is estimated to be 15.4 million, up from 14.3 million in October 2012 and up from 15.2 million in September 2013.
 
“The government shutdown didn’t impact consumers growing appetite for buying new vehicles,” said Alec Gutierrez, senior analyst for Kelley Blue Book. “The expectations were that car buyers would wait on the sidelines, but because of pent-up demand and credit availability, car sales are expected to increase 7 percent from last month.”

 
My view
 
According to the specialists, new auto sales could rebound in September. It looks the government shutdown impacted sales early in the month particularly on the east coast but sales have recovered at the end of the month.

“Tapering”: Expectations Vary From December 2013 to June 2014

While the focus started to shift to corporate earnings and the consequences of the government shutdown, it also turned to the speculation that the Fed will take more time to reduce its asset purchase program.

 

In the FT, Robin Harding and Michael Mackenzie suggest that “tapering” in October seems to be excluded because of the lack of data. However, Fed officials could still favor a small taper in December if November data show a real improvement from September.

 

The US government shutdown sabotaged a crucial month of data and dealt a blow to the world’s largest economy, but the Federal Reserve could still begin reducing its asset purchases as early as December.
 
Analysts have slashed their growth forecasts for the fourth quarter to 2 per cent or below, with many expecting a hit of about 0.5 percentage points from the prolonged shutdown. But many said the economy would bounce back quickly with federal employees back at work.

 

In the WSJ, Jon Hilsenrath reports that the Fed is unlikely to taper in October but could act in December or January depending on the data strenght.

 

The Fed is unlikely to start curtailing its bond buying at its next policy meeting Oct. 29-30. Fed officials have said the decision depends on how the economic data evolve, but the data won’t be very illuminating into November because the partial government shutdown closed the agencies that collect them.
 
Fed officials could act at one of the following two meetings—Dec. 17-18 or Jan. 28-29. Their decision will turn on the strength of an economy that would still be a bit harder to read and possibly stung by recent uncertainty.

 

Finally, BlackRock Inc. Chief Executive Laurence Fink said Wednesday in an interview on CNBC that the debt crisis is likely to delay the beginning of the Federal Reserve’s exit from its bond buying program at least until March and possibly as late as June.

After “Government Shutdown”, the Fed Will Not “Taper” Until at least December

This morning, the U.S. government began a partial shutdown for the first time in 17 years which will put as many as 800,000 federal employees out of work. Moreover, according to IHS, partial shutdown would cost U.S. at least $300 million/day in lost economic output (0.002% of real GDP) at the start.

 

More from Bloomberg:

 

A partial shutdown of the federal government would cost the U.S. at least $300 million a day in lost economic output at the start, according to IHS Inc.
 
While that is a small fraction of the country’s $15.7 trillion economy, the daily impact of a shutdown is likely to accelerate if it continues as it depresses confidence and spending by businesses and consumers.

 

The impact on the economy will be minimal if the shutdown is short, however, the risk is that the debate could drag on until October 17th (Treasury deadline).

 

In this context, the Fed will maintain a very accommodative policy letting its asset purchase program unchanged at least until December meeting (December 17-18). Indeed, it is very unlikely that Fed will start “tapering” at the October meeting (October 29-30) for several reasons:
 
1/ Inflation remains particularly low and well below Fed’s target:
* PCE Core inflation and PCE inflation were revised downward in Q2 from 0.8% (QoQ Annualized) to 0.6%.
* PCE Deflator YoY WAS 1.2% in August and was revised downward in July from 1.4% to 1.2%.
* Prices for gasoline on the New York Mercantile Exchange have fallen roughly 11% in September.
 
2/ Growth will remain sluggish:
* Fiscal issues were already weighing on companies’ expectations as the BRT (Business RoundTable) third quarter CEO Economic Outlook Survey fell to its lowest level since Q4 2012.
* The latest figures suggest that Q3 GDP, which will be published on October 30, will be slightly below 2% (QoQ Annualized).

 

3/ Jobs report and other economic reports will be delayed or cancelled according to Reuters. Without figures which sow a significant improvement concerning labor market, the Fed will not “taper”.
 

The United States will stop publishing much of its economic data next week if the government shuts down, including the closely watched monthly employment report, officials said on Friday.

 

4/ Given the recent trend in inflation, growth and the fact that employment report will be delayed or cancelled, Fed members’ speeches (voters) since last FOMC suggest that “Octaper” is unlikely:
 
* On September 18 – Fed Chairman Bernanke (dove, FOMC voter) / There is no fixed calendar for tapering, it could begin this year, depending on data. – FOMC press conf
- Fed to maintain highly accommodative policy.
 
* On September 20 – Fed’s Bullard (moderate, FOMC voter) / GDP is tracking below 2%, thought it would be higher at this point – speech in New York + comments
- Removing accommodation when inflation is below target is concerning. Fed must hit inflation targets.
- Want to see a recovery in inflation before adjusting stimulus program, inflation is expected to rise over the upcoming quarters.
 
* On September 23 – Fed’s Dudley (dove, FOMC voter) / Reiterates that Fed policy will continue to be driven by incoming economic data – speech in New York City
- Fiscal uncertainty is one issue impacting the schedule for exiting QE, along with market interest rates and less good data.
 
* On September 26 – Fed’s Stein (dove, FOMC voter) / US still requires accommodative policy – speech in Frankfurt
 
* On September 27 – Fed’s Evans (dove, FOMC voter) / Needed to defend inflation from below as well as above – comments from Oslo
- Tapering could start in Oct, Dec, but could be pushed to Jan.

 
 

All Fed members’ speeches concerning QE and economic activity since the last FOMC meeting (September 17-18) are available here.