I've been writing about anecdotal reports that US home and auto sales suddenly picked up in the past few weeks. They're the most interest-rate-sensitive part of the economy so they've been hit hard by Fed moves. However with rates ebbing early in the new year, a torrent of pent-up demand emerged.
I think it's telling.
It shows that consumer still have money to spend and still want those houses and cars. Vehicle production was curtailed by the pandemic and still hasn't caught up. Covid-19 also inspired many people to buy homes and start families; many were initially priced out but that demand is still there.
He notes that some of it is seasonal but that can't explain it. Earlier this week, Manheim reported that its used vehicle index rose 0.8% m/m and that caught many off guard.
Before that data, many analysts were expecting auto sales to round trip.
Today Morgan Stanley is out with a note looking deeper and finding the same thing but still without explanations.
They spoke with a Ford dealer who said:
"We’re just blown away by how strong January was... the best used car month we’ve had in three years."
Here's the explanation: The consumer is still flush and the Fed has more work to do. That's precisely what was my #1 theme at the start of the year when everyone else was saying a recession was coming.
The knock-on investment here is simple: Homes and cars. The risk is that the Fed hikes to something so painful (6%? 7%?) that it truly ends the party. The second thing is that pent-up pandemic savings will eventually run out, likely at the end of 2023 so next year could be double-trouble if the Fed hikes further and the money runs out.
