Retails Sales Beat Expectations On Levered Car And Gas Sales, As Inflation Picks Up Again In Import Prices

Tyler Durden's picture

There is good and bad news in today's economic data release: on one hand retail sales in September beat expectations at 1.1%, on expectations of 0.7%, and up from an upward revised 0.3% in August. Retail sales less autos was a modest beat at 0.6% on expectations of 0.3%, although the previous number was revised substantially higher from 0.1% to 0.5%. Yet confirming that the bulk of the "beat" was in auto and associated gas sales, was that Retail Sales ex Autos and Gas (duh) came at 0.5% on expectations of 0.4%. Basically, surging subprime loans to autopurchasers and the resulting increase in gasoline sales was the reason for this "surprise" beat. And as for the bad news, import prices jumped to 0.3% in September, on expectations of -0.4%, a surge from August's revised -0.2%. And while fuel imports had dropped in August -1.4%, in September these jumped to a positive 0.1%, showing just how big the monthly sensitivity to any moves in the energy complex are. In other words, should inflation persist, don't expect for retail sales, which we expect to decline to recent deleveraging at the consumer level, to persist.

For those surprised by how resilient car sales have been here is Goldman Sachs with an explanation:

  • Vehicles sales have increased at a healthy pace over the last two years despite a weak household sector and a tepid recovery overall. What explains the steady growth in vehicle sales since the recession ended?
  • Based on the composition of sales, the main factor appears to be business investment spending. Vehicle sales are often thought of as an indicator of consumer demand, but companies account for about half of the dollar value of new purchases. Since vehicle sales bottomed, firms have accounted for about 70% of the growth in purchases. The outlook for business vehicle purchases arguably remains bright, mostly due to pent-up demand.
  • Over the short term, consumer purchases of vehicles may also remain strong as recent supply-chain disruptions are fully resolved. However, the medium-term outlook appears less favorable than for business sales. Most importantly, unlike in the business segment of the market, there is no obvious pent-up demand for consumer sales—our modeling suggests consumer vehicle holdings are close to equilibrium. Secular trends (population growth, depreciation, etc.) should support consumer sales over time, but cyclical factors (unemployment, credit conditions, and oil prices) may be a persistent headwind.

After falling off during the spring and summer, vehicle sales have picked up recently. Total light weight vehicle sales rose to a seasonally adjusted annualized rate (saar) of 13.1 million units in September, up from 12.1m in August. Part of the improvement reflects a greater availability of Japanese-brand vehicles following supply-chain disruptions earlier this year. However, vehicle sales have also increased at a healthy pace over the last two years—at an annualized rate of 18%—despite a weak household sector and a tepid recovery overall. Given the depth of the recession in the vehicle sector, some bounce back should have been expected. But what fundamentally explains the strong recovery in vehicle purchases?

Based on the composition of sales, the main factor appears to be business investment spending. Vehicle sales are often thought of as an indicator of consumer demand, but companies account for a large share of new purchases—as of Q2, business purchases accounted for 49% of the dollar value of new sales, according to the Department of Commerce (DOC). Each month the DOC calculates the share of unit sales to consumers and to businesses, using state-level data on vehicle registrations. As shown in the exhibit below, since vehicle sales bottomed in February 2009, sales to firms have accounted for about 70% of the growth in new purchases (the breakdown of sales is not yet available for September, so for last month we have assumed the shares were unchanged from August; also note that sales to businesses are broader than “fleet sales”, and include purchases by small business at retail vehicle dealers).
Most of Sales Growth Coming from Business Sales

The outlook for business vehicle purchases arguably remains bright, mostly due to pent-up demand in this segment of the market. Real investment in transportation equipment fell by 68% peak-to-trough during the recession, a far larger drop than for other types of business investment. And despite a strong recovery to date, year-over-year growth in the stock of transportation equipment is still negative, meaning that investment spending over the last year has run below the rate of depreciation (Exhibit 2). Modeling business demand for transportation equipment is challenging (as with most types of nonresidential investment), but a simple model relating the stock of business transportation equipment to real GDP and relative prices suggests transportation capex is probably well below “equilibrium”. Short-term indicators are mixed, with strong heavy truck sales and durable goods orders, but weakness in the timelier business surveys. If the economy enters another recession, business vehicle sales would likely decline too. However, barring that, they should be poised for continued strong growth.
Low Capital Stock Growth Suggests Pent-up Demand

Over the short term, consumer purchases of vehicles may also remain strong as supply-chain-related issues are fully resolved. However, the medium-term outlook appears less favorable than for business sales. We model the stock of vehicles owned by households with four main factors (model details appear at the end of this note):

1. Demographics. Population growth is the single most important determinant of vehicle stocks—more people equals more cars on the road. Gradual growth in the population should continue to support vehicle sales in the future. The age structure of the population also matters: states restrict driving among the young, and driving miles and vehicle ownership eventually fall off for older age groups (according to data from the Federal Highway Administration and the Federal Reserve’s Survey of Consumer Finances, respectively). The age structure of the population is currently a neutral factor for the vehicle sales outlook, but will likely become a negative in 5-10 years as the baby boomers age.

2. Income levels. Income levels also help determine vehicle ownership. For example, in a large sample of countries, GDP per capita explains about 80% of the variation in the number of vehicles per person (World Bank data for 2008). Rising income levels have also supported greater household ownership of vehicles in the US over time, and today 87% of US households own a car or truck (not including leased or employer-provided vehicles).

3. Cost of vehicles and financing. Not surprisingly, car and truck sales are also sensitive to the cost of vehicles. In our modeling, we incorporate four specific variables: 1) the relative price of motor vehicles; 2) the relative price of gasoline; 3) real interest rates; and 4) credit conditions. Lower costs help explain the strong growth in consumer auto purchases in recent years: until recently, new car and truck prices had fallen steadily relative to overall consumer prices, and real interest rates have generally declined as well.

4. Labor market conditions. Lastly, labor market conditions—and particularly the unemployment rate—appear to matter for vehicle sales. These variables may proxy for income expectations, or perhaps for consumer confidence in general.
Given these fundamentals, we see a relatively weak outlook for vehicle sales to consumers over the next 1-2 years. Most importantly, unlike in the business segment of the market, there is no obvious pent-up demand for consumer sales: our model suggests that the stock of consumer vehicles is close to equilibrium at present. Therefore, growth in consumer vehicle sales will require improvement in the underlying fundamentals. Some factors will remain supportive of consumer auto sales, such as population growth, depreciation, gradual per capita GDP growth, and perhaps lower relative prices for cars and trucks. However, cyclical factors—especially unemployment, but also possibly credit conditions and oil prices—may be a persistent headwind.

Our equity research analysts forecast total vehicle sales of about 14.0m by the end of 2012. Based on our broader macroeconomic forecasts, this estimate looks achievable. But we suspect that most of this growth will come from sales to businesses, with the consumer segment of the market growing at a much slower pace.

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SheepDog-One's picture

Cool lets ramp stocks then! Actually seems they had it pre-priced-in already...nah surely that couldnt be. Any bets on the nuclear war kickoff in Iran this weekend, or maybe it will be next. 

sabra1's picture

just think of all those blown up cars that will have to be replaced! i bet GM already has their showroom busting at the seams in iran! 

Pool Shark's picture



Actually, retail sales were down across the board in September:

The increase was due solely to seasonal adjustments...

hannah's picture

+100 pool shark.....but does it matter...? as no one actually reads the report! CNBC has repeatedly stated up 1.1% all f'ing day!

Jeff Lebowski's picture

If it does happen, accolades to ORI.

Since Chris needs to Pussyfoot, let me say it.

Very high liklihood of a huge downturn in the market next week. Black Monday, Tuesday or some such. The news will flash on Saturday, 15th. Good to pay attention.

Everything down, a risk off like not seen in a long time. PM's too. It's been hinted at variously, astrologically included. Clif High also has that date (10/15) as a big move day.

Hedge accordingly. I am.


deez nutz's picture

Dead grandmas make great GM customers!! (even if their signature is only an X).

Get real folks, GM is a sham and is back to the fog-a-mirror-get-a-car program.  When this fkker tanks again, and it will, GM will back for another 50 billion. 

SheepDog-One's picture

'Business vehicle purchases remains bright'...gee so who is buying those, the USPS? Gooberment?

Scarlo's picture

I've been noting a bit of channel stuffing in my area for the last month or so now. (parking lots with new cars, NOT the dealerships)

oh_bama's picture



broke433's picture

I bought put options on VIX

sabra1's picture

i bought some onion dip to watch the show about to unfold!

junkyardjack's picture

I killed my shorts after day two and went long, markets can stay irrational longer than you can stay solvent.  Ride the HFTs

SheepDog-One's picture

I did buy the dip, 20% off sale on ammo last week, went all-in long.

broke433's picture

QQQ is going to hit 52-week high soon, rally on Bitchez

Archimedes's picture

Hey Tyler,

I have been following the GM channel stuffing story and last month you did not post an article about it as GM sold a butt load of vehicles and the dealer inventory dropped.

You are constantly saying GMAC is giving out sub prime auto loans to anyone with a pulse and I believe you. But since you seem to have a keen ability to sift through the numbers and find the important data is would be great if you could do a story on what percentage of GM car buyers have good credit/ fair credit/ poor credit. It would be interesting to see exactly how many car loans are sub prime. It would bolster your case and I won't have to see all of the trolls back on the site saying how the US consumer is so resilient.


SheepDog-One's picture

I dont believe anything Gubment Motors says.

Archimedes's picture


Business sales increased other than Car rental fleet sales? So is this small businesses buying new pick up trucks (Which accounts for the spike in new truck sales). I dont see how City and State Governments can afford new auto sales when their budgets are shrinking.

SheepDog-One's picture

I dont know, do you know of any small business that is buying new trucks like mad? I dont know of any myself.

Isotope's picture

September 2011 sales:

Total cars - 487,239

Total trucks - 566,483 (these are apparently light trucks)

On the bright side, Maybach sold 4 units.

No Mas's picture

Trolls?  How about voices of reason.

The Tyler Durdens tell us all of the time that GM sales aren't, it's just "channel stuffing."  Now when the retail side of the house explodes, well, it must be those subprime loans!!

The cars are either sitting on the lots or they aren't and quite frankly, the evidence indicates they aren't.

Come on ZH'ers.  Face reality.  There is no crash to be had any time soon.  Things are exactly as the MSM media has been telling you for three years.  Not great, but growing.  Not fast, not steady but still growing.  The recession was deep and it will take time to come out of it but come out of it we will and we are now in the process.

GM might fail as they are a harbor of idiots and guberment money.  But they are not going to fail because of weak consumers.  While it appears most of the ZH Sheeple are unemployed, about 90% of the rest of the country is working and spending money.

Smile, this is actually good news for all of us.  Think about it sheeple; one day you too may have gainful employment!

Tsar Pointless's picture

Let me ask you a question:

Without the free and easy credit that once again is flowing like the Nile, Mississippi and Amazon all rolled up into one, do you think people could/would be buying new cars today?

When this debt dance party ends - AND IT WILL - the hangover is going to be mighty torturous and lengthy.

This isn't 2008. There isn't a year in the history of our country - or world, for that matter - to which I can compare our current situation.

Yeah, I'm saying it's different this time.

firstdivision's picture

That is idiotic to think that we are not on the verge of another economic collapse.  If we have been doing nothing but growing for the past 3 years, why are stocks down from their peak?  Also, just to point out another flaw, exactly 3 years ago we were spiraling down the toilet.

Archimedes's picture

Funny I mention Trolls and you show up!  How appropriate. I usually don't waste my time commenting or explaining things to morons and I won't list the countless issues America faces. But the fact that you can say 90% of the rest of Americans are working shows what an imbecile you are.

Please show a stat proving this or go away, because if you comment on another one of my posts  with nonsense I am going to have to embarrass you.

SheepDog-One's picture

NoMas...who are you arguing with? Tilting at windmills, LUNATIC? No ones stopping YOU from buying as many new cars and GM stocks as you want! Go all-in, BITCH!

jdelano's picture

'there is no crash to be had any time soon'

You're on the record with that one now.  I'll put this on the record and let's see how things shake out:

'you will see 950 on the s&p before the first of the year.  If you don't, then you will see 700 or lower on the S&P in Q3 of 2012.  Within one year from today, you will see riots on the streets of America, London, and all of Europe.  You will waves of municpal defaults, pension cuts, and unemployment at >12%.'  

This is very simple math.  Insolvent is insolvent, unsustainable means unsustainable.  There are only two options--the system must either collapse or be massively reformed.  You are not doing anyone a favor by preaching 'all is well'.  Ignoring a terminal cancer and telling yourself 'it's not so bad, I've got at least a few months and in that time a miracle could happen' is called the denial phase.  It's a natural process, so I understand why so many of you need to go through it, but at some point you need to put aside the scared child part of you and embrace the adult.   An adult stands up and faces the void.  An adult addresses the reality and puts his or her affairs in order so that the impact upon relatives, friends, and loved ones will be tempered somewhat.  This country needs to get through the denial phase and start preparing.  

sopel39's picture

I think No Mas has the point. I have been reading this blog for a while since it is a good source of information and exposes frauds of our Lords. However, it seems that everybody here is too pessimistic. The World is not ending, it is just changing.

MK ultra's picture

+1 Mas.

The collapse of the tech buble in '99 couldn't do it.

The RE collapse in '08 couldn't do it.

GM going bankrupt was a bump in the road.

Collapsters pointing at the weak Baltic Index were wrong.

The Bird Flu "Pandemic" was a hoax. (Not the bird flu part.. just the "pandemic")

The market collapse to 6500 was a BTFD opportunity to get rich. Move along.. nothing to see.

Iranian Nuke Program? Yeah, right. Stuxnet bitches.

Arab Sping my ass. Israel just laughs at their unorganized black asses running around in Toyota P'ups with AK's.

Alt-A Loan refin ?? Someone give me an update, hahahaaa.....

Don't forget the Tsunami, and Dexia and Greece and 16% unemployment, and, and.....

Not gonna happen folks. Quit living in fear/paranoia, your 36" flat screen and $5K zero-turn lawnmower are waiting for you on isles 3 and 5.



hannah's picture

GM didnt sell a butload of anything....

Belarus's picture

Looks like resistence of 1220 will be taken out soon. Then every major market indice will head green on the year. Then confidence will come back just in time for late fall rally. Sending every major index north of 15+% on the year while the ECRI indicators all turn up. 




SheepDog-One's picture

Too bad all that will be irrelevant with the nuclear world war kickoff in Iran.

No Mas's picture

You can't face reality can you Sheeple-Dog?  The world has been ending for you pretty much every day since you began posting, yet here we are, slugging along, making a go of things and you just can't seem to face the reality of it all.

Tell you what, if there is no nuclear war anywhere in the world in the next year, why don't you agree to start posting comments about how things aren't great but they're improving.  And never mention war or hyperinflation again.

Any chance you can ever admit you're simply wrong about the direction of our economy, our nation and the world?

SheepDog-One's picture

LOL hillarious! Hey go buy stocks then idiot! No ones stopping you go all-in ass hat!

I'm happy that I was able to spin your troll ass up into a frenzy this morning though! Put your money where your mouth is and BUY IT, bitch!

jdelano's picture

MY god--can you really, honestly be so blind?  When there are people amassing in the streets in New York, London, Chi town...when sovereigns are being downgraded one after another, when American municipalities are GOING INTO BANKRUPTCY, when stock market volatility is like a tennis ball shot from a cannon into a room full of moustraps, when unemployment is 9% and rising in the us and hitting all time records in the U.K, when corporate earnings are at all time peaks and have nowhere to go but down as virtually EVERY OTHER market in the world has fallen firmly into bear territory, when China is crashing and we are entering a trade war and GDP growth is so feeble that....oh screw it.  Screw it and screw all of you--you don't want reason, you don't want a future, you want the ponzi to go on and the HGTV fairy tale to resume.  SHEEP DOG CAN'T FACE REALITY?   SERiOUSLY?  here you are injecting a ten gallon load of MSM morphine into your eyeballs to slip into a palliative cocoon of lalalalalalala---and SHEEP DOG is the one living in delusion?  Do you think I really want things to be bad?  Do you think I wouldn't love to just put my money in the market and head to the beach knowing that everything was going to be fine?   I want to help you goddamn people-but you know what, you just keep running back to mommy's skirt.  Screw it.  You're not worth fucking helping.  Gold helps those who help themselves.  To gold. 

jdelano's picture

you do a lot of flip flopping roose

Belarus's picture flip flopping: this market is fucked within 3 weeks to a year. I just find it amusing how the market will just toally ignore the elephant in the room while everyone goes out there looking to pick up nickels in front of a steam roller. 

Car sales will be toast when the 10 year hits 10%. The economy will fall off a cliff. And this time there are no "sticksaves" when interest rates get out of control. We're coming right up to the cross-road: a deflationary depression or hyper-inflation. We'll know soon which one but I sure can take a guess.

Never miscontrue my mocking of the market. I'm the biggest bear alive.

Belarus's picture

...but it doesn't mean I can't see how retarded the market is with short-term rose-colored glasses. look, 1220 is being taken out, more shorts will cover, market goes higher, ramp comes in later today, takes it even higher. By Monday every fool alive will be afraid to miss the next great bull market. LMAO.

firstdivision's picture

WOW!  Look at how we sliced through resistence and kept going....oh wait we didn't.  GFY.

EZT's picture

GAP closing 100 stores in the USA...

junkyardjack's picture

Who put the turd in the punchbowl? No one cares about your reality negative energy, we only want to see some positivity.  Think what that will do to GAPs operating margins? I might pick up some of their stock on the cheap today.  Isn't it funny that all the US companies are now shutting down their stores and relocating into China to save themselves.  God if China does blow up its going to be epic

firstdivision's picture

I'm due for a vehicle, and I've noticed that used vehicles have risen in price quite substantially.  In fact, used vehicles have become so expensive, that I'm actually going to end up buying new (reluctantly).   Any ideas on why used car prices have skyrocketed in the past year?

sabra1's picture

if you need a new vehicle, cal,l Rick Shaw!

OneEyedJack's picture

cash for clunkers

reduced inventory of used cars

firstdivision's picture

But didn't cash for clunkers only qualify for new cars by GM/Ford/Dodge?  Wouldn't used car inventory have risen due to cash for clunkers?  It would make sense if used car prices fell, but they have risen quite a bit lately.

Jeff Lebowski's picture

I share your confusion.  I looked at a relatively basic 4 wheel drive, 4 door cab, 2010 Toyota Tundra with 20k miles at a Carmax (no negotiation) for $31,500.  I bought almost the same truck (except new and with TRD package that the used truck didn't have) for $33,000.  I had zero intention of buying new, and yet, i did.

I asked the dealer why the high price on used, when new is practically the same price - he said used cars were greater in demand.  I asked him how he sells them when they are so close in price.  He admitted that he hadn't seen one sold in 3 weeks.


Bobbyrib's picture

During economic depressions demand for used vehicles rises and as OneEyedJack said Cash for Perfectly Good Cars (err Clunkers) eliminated some of the supply so prices rose.

DosZap's picture

Going to be a ot of increase in the auto numbers soon.

Folks are going to have to buy new cars, as they have put off purchases for 3-4yrs longer than usual, and their old ones appproaching 200+k are falling apart.

Their is a point of diminishing return.0%-60mos, little down,(or nada) so you  can't pay, lose job, turn in, walk away......................the new book on purchases.



DavidC's picture

Yes, the whole lot and as Karl says, a 5% month on month down, non-seasonally adjusted.

ALL of it is seasonal adjustment.


Racer's picture

and if you take inflation into account then the figures are even worse!