Autos, Homes Help Economy Pick Up Speed
Ford Motor Co., DaimlerChrysler and Toyota Motor Corp. had strong U.S. sales in January as low interest rates and rising consumer buying power boosted demand for cars and trucks.
The conditions spurring the auto industry also helped push U.S. new-home sales up 10.4% to a record 888,000 last year, the Commerce Department reported Tuesday. In addition, the index of leading economic indicators, intended to project the U.S. economy’s performance six months out, rose 0.3% in December, its third straight gain.
The current U.S. economic expansion has entered its 95th month--the longest in peacetime--and continues to show strength. The National Assn. of Purchasing Management earlier this week said its index of manufacturing activity rose to 49.5 last month from 45.3 in December, the highest reading since June and an indication that U.S. manufacturing had begun to recover.
Financial weakness around the world, particularly in Asia and Latin America, led to forecasts last year of a severe slowdown, possibly to the point of recession, for the U.S. economy. But that forecast is now being revised.
“The immediate threat to the current economic expansion clearly has subsided,” John Auten, director of the U.S. Treasury’s office of macroeconomic analysis, Tuesday told a panel of Wall Street executives who advise the Treasury on market borrowing. “Indeed, the economy picked up speed late last year.”
The outlook for this year is also positive, Auten said.
Ford, the world’s second-largest auto maker, said overall sales in January rose 8% to 261,414, including a 9.4% rise in sales of its trucks, minivans and sport-utility vehicles, double the forecasts of 4%. No. 3 DaimlerChrysler said total U.S. sales of cars and light trucks rose 19% to 195,807 units.
Toyota, the fourth-biggest auto maker, gained 27%. Honda Motor Co. said its total U.S. sales including imports rose 17%, while Volkswagen posted a 51% gain.
Today, No. 1 General Motors Corp. is expected to report that January sales of vehicles made in North America and sold in the U.S. rose 6%.
Autos are seen selling at an adjusted annualized rate of about 15.2 million for January, up from 14.4 million in the year-earlier month. December’s incentive-driven pace of 17.3 million was the highest since 1986.
With an economy this strong, Federal Reserve policymakers aren’t likely to cut interest rates at the conclusion of their two-day policy meeting today. A survey of 30 primary dealers in Treasury securities found that all expect the Fed’s Open Market Committee to leave the overnight bank lending rate target--the “federal funds” rate--unchanged at 4.75%.
Tuesday’s Commerce Department report showed sales of new homes totaled 888,000 in 1998, up 10.4% from a year earlier and well above the previous high of 819,000 set in 1977. In December, new single-family homes sold at a seasonally adjusted annual rate of 978,000 units--the second-highest monthly pace ever, eclipsed only by November’s record 1.02 million homes.
Sales of all homes--existing and new--rose 13% in 1998 to 5.67 million units, a third straight annual record, government and industry figures show. Thirty-year mortgage rates below 7% contributed to the strength, as did the addition of 2.9 million jobs in 1998 that helped push the unemployment rate down to a 28-year low of 4.3%.
The rise in the Conference Board’s index of leading indicators was led by an increased money supply and higher stocks. Other positive components were increased new orders for consumer goods, a longer average manufacturing workweek, a rise in building permits and more non-defense capital goods orders.
The December rise of 0.3% followed increases of 0.5% in November and 0.1% in October.
Subtracting from the overall index and suggesting weaker growth in the months to come were: faster supplier delivery times, a drop in consumer expectations, rising jobless claims and a narrowing of the spread between the yield on the 10-year Treasury bond and the federal funds rate.
“This expansion shows no sign of ending,” said Michael Boldin, director of business cycle research at the Conference Board.
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Index of Leading Economic Indicators
Seasonally adjusted index, 1992 = 100
December: 106.5
Source: Conference Board
New-Home Sales
Seasonally adjusted annual rate, in thousands of units:
December: 978,000
Source: Commerce Department
