Auto Sales & Employment….Better News Coming?


By Todd Sullivan of Value Plays

Yesterday I tweeted on the correlation between auto sales and recessions. The truth is we have never had a recession when auto sales are increasing. In fact, auto sales tend to begin falling 4-6months before a recession. See chart, shaded areas are recessions:

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Further, when we see auto sales improving at double digit rates, it is easy to say the chance of recession is becoming more remote by the day.

Today Davidson runs the correlation between auto sales and employment. I think the questions he proposes on the chart is very valid, we may in fact be due for an acceleration in the household survey given the surge in auto sales and the fact it seems there is no pullback in sight for them for at least the next quarter. When $F and $GMare seeing the large YOY sales increases they are AND increasing production for Q1, that not only means more hiring and hours from them but throughout the whole auto supply chain.

“Davidson” submits:

The yesterday’s report of Auto&Lt Truck Sales rising to 13.6mil Seasonally Adjusted Annual Rate (SAAR) and this morning’s Household Survey Employment report rising by 278,000 to 140,580,000 employed is nothing but good news. Importantly, employment growth appears to be accelerating, but because no single or even a couple of months of data make a trend, we need to wait another 4mos or so to confirm this. The trends in the chart below are unmistakable. Yes they are up and they have not really wavered since 2yrs+ ago. The fears of recession should melt away as time passes and greater enthusiasm for the equity markets should develop.

I remain optimistic. You should remain optimistic. Equities remain an undervalued asset class in my opinion.

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.

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