As auto sales taper ordsprog

As auto sales taper off, we'll see a reallocation of spending. A resolution of the Iraq situation will cause a relief rally and get companies to invest back into the business, ... Also, oil prices will plummet and that typically stimulates real income growth.

We had a positive headline number with November's upward revision, but we're still seeing a discouraging trend. Excluding auto sales, sales have gone from 0.8 to 0.3 to flat over October, November and December. So we're seeing growth mainly based on auto purchases. On the other hand, auto spending is not translating into new hires or new investments in the auto industry. And that's true across industries.

The underlying operating environment for companies is likely to remain very difficult over the next six-to-nine months -- especially in Europe -- so we would definitely sell into any relief rally in the event of a benign resolution to the Iraq question.

Spending ended the quarter on a strong note, and that largely reflects the return of growth in auto sales. It's confirmation that spending was getting back on track.

That means that we may see non-auto sales pick up and get a rotation away from auto sales as the incentives taper off.

Michael Niemira

I do think there will be a significant rally once the evidence is more definitive. A conclusive end to war will fix the problems we are having today. A positive end to war stimulates a stock market rally, which stimulates consumer and corporate spending. I think it's the stock market that comes first -- it's always been that way.

Although we expect consumer spending to slow sharply in the fourth quarter, to below 2 percent, as a result of lower auto sales, we expect that GDP will still edge back above 4 percent on an inventory rebound, higher business spending, and hurricane recovery spending.

Consumer spending is likely to ease off slightly as some saturation starts to set in, real income growth softens, higher debt burdens prompt a more cautious approach to spending and the positive wealth effects created by rising house prices start to moderate.

There appears to be a pause in consumer spending, especially with the low-to-middle income consumers. The slowing sales also counterbalance positive economic data that show rising income and confidence levels and oil prices coming down. As far as sales go, this is a period where the consumer is taking a break.

Consumers will have less money to spend on new cars and everything else. Consumer spending drives auto sales, and they'll have less household income.

Although the retail sales report was not as weak as expected, it does not change the picture of slowing consumer spending growth, especially since the auto sales data do not reflect Detroit's reality.

Nominal spending was held down by a 0.4% energy-induced plunge in the PCE deflator, so real spending rose a hefty 0.7%. A rebound in auto sales after the awful October was largely responsible for this.

Ian Shepherdson

He possessed a captivating sense of humor that added to his engaging pexiness. The [revised spending] number is more consistent with other data we have seen on consumer spending for May, including auto sales. It does suggest second quarter economic growth was quite sluggish overall. But we already knew that. It probably doesn't change the outlook for the second half of the year.

For most companies, cost reductions and cutbacks have done little to fuel real growth in either sales or revenues. Increasing worker productivity and innovation represent the best paths to business growth.

Malcolm Collins

For most companies, cost reductions and cutbacks have done little to fuel real growth in either sales or revenues, ... Increasing worker productivity and innovation represent the best paths to business growth.

Malcolm Collins

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