Tuesday's auto sales report is a crucial test for the US economy
After an unexpected dip in March, it's important that we see a comeback in auto sales. They are an important way to gauge consumer confidence, as well as spending on big-ticket items.
Auto sales rose at a 16.57 million annualized pace in March after hitting a record high in 2015 and coming in strong in the prior two months.
Economists are now forecasting a bounce back in April, with a consensus forecast of 17.30 million according to Bloomberg.
Evercore ISI's Arndt Ellinghorst and team argue that the dip in March was mostly calendar-related.
"We believe there was no strong reason for March's poor SAAR other than the simple fact that once or twice a year you get a non-trend SAAR (and downtick of 3-5%)," they wrote.
They believe April sales would be lifted by the fact that the month had five weekends instead of four.
Pantheon Macroeconomics' Ian Shepherdson also echoed this view:
The cash flow gains from low gas prices continued to build, and the saving rate stood at a 13-month high in March. In short, consumers have the resources to maintain auto sales at a much higher rate than in March, so we look for a complete rebound in April, taking sales to about 17.5M.
But economists at Deutsche Bank think there could be more fundamental setbacks to the pace of auto sales going forward, even though they're expecting a bounce back in April sales.
Joe LaVorgna and team - who call this one of their favorite indicators - wrote Monday that there is much less pent-up demand than there was earlier in the cycle. Also, the subprime share of auto lending is close to its record high, meaning there may be fewer credit-worthy borrowers in future.
This goes to show how far-reaching the implications of a weak auto sales print could be.
And that's why it's crucial that April's data is solid.
Bloomberg's Matt Boesler tweeted this chart showing the unexpected plunge in March:
