Temporary Rebound In Consumer Sales Coming Up

Economists now estimate ‘Clunkers’ Probably Boosted Retail Sales.

The U.S. government’s auto trade- in program probably lifted retail sales in August to their biggest gain in more than three years and boosted factory output, economists said before reports this week.

Total purchases climbed 1.9 percent, the most since January 2006, according to the median of 60 estimates in a Bloomberg News survey ahead of Commerce Department figures due Sept. 15. The Obama administration’s “cash for clunkers” plan also helped industrial production in August to its first back- to-back monthly increase since 2007, economists said.

Americans flocked to auto showrooms last month to take advantage of the incentive program while purchases of other items were subdued even as evidence mounts that the worst recession since the Great Depression is ending. With unemployment forecast to reach 10 percent by the end of the year, consumer spending likely won’t lead the recovery.

Cars and light trucks sold at a 14.1 million annual pace last month, up 25 percent from July, according to industry figures. It was the biggest gain since October 2001.

Last month General Motors Co. called back 1,350 union workers, its biggest one-time increase in jobs since 2006, as it ramped up second-half production in part to meet demand linked to the government trade-in program.

The Fed’s measure of production, due Sept. 16, probably rose 0.6 percent, the most since October, according to the survey. The report may also show the proportion of plant capacity in use in the U.S. climbed to 69.1 percent, the highest in five months.

Manufacturing in the New York region posted its first back-to-back monthly expansion since January 2008, economists said before a report due Sept. 15. The New York Fed’s general economic index likely climbed to 15 this month from 12.1 in August, according to the survey.

The housing market also is showing early signs of a rebound. A Commerce Department report due Sept. 17 will show builders broke ground on 600,000 new homes last month at an annual rate, a 3.3 percent gain and the fastest pace since November, according to the survey median.

The world’s largest economy contracted 1 percent in the second quarter, the Commerce Department said last month, the fourth straight quarterly drop. That made the downturn the longest contraction since such records began in 1947.

49% of the clunkers rebates went to Toyota and it is cutting production. GM is ramping up production again. I suspect GM will soon regret it.

One reason home sales are up is $8,000 tax credits that people can use for down payments.

The moral of the story is: if you give enough money away people will spend some of it it, at least for a while. However, those that just bought a car would not buy another one nor would those who just bought a house buy another. Artificial stimulus can shift some demand forward, but not an infinite amount.

There was a small amount of pent-up demand but that is quickly wearing off as a result of these programs. Nonetheless, GDP is going to be green in the third quarter. Perhaps the NBER even declares the end of the recession.

Get your party hats and horns ready to celebrate the end of the recession. Then be prepared to quickly take them off. A double dip recession is baked in the cake.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List