U.S. Light Vehicle Sales Spurred by Incentives

Unit sales of light vehicles jumped 12.3% to 18.40M in December, the first m/m gain in three months. The jump was to the highest selling rate in over two years. Consensus expectations had been for sales of 16.9M.

Sales of light trucks surged 11.7% as both domestic (+11.9% m/m, +0.7% y/y) and imported (+10.2% m/m, +14.6% y/y) trucks benefited from aggressive price discounts.

Total auto sales jumped 13.0% m/m. Sales of domestic autos paced the gain with a 16.2% rise but domestic car sales in 2004 fell for the fifth straight year, down 26.3% since the recent peak in 1994. Sales of imported cars rose 5.7% in December and by 3.0% for the full year.

Imports' share of the US market for new vehicles slipped to 20.0% in December but for the full year was about stable with 2003 at 19.9%.

According to Challenger, Gray & Christmas, job cut announcements reported in December rose 4.3% from November and ended the year up 17.2% from a year earlier. Despite these gains, total job cut announcements in 2004 fell 15.9% versus 2003, down for the third consecutive year and were nearly half the peak level in 2001.

During the last ten years there has been an 86% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment.

Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.

Increases in job cut announcements were widespread last month, although they halved in the E-Commerce & Dot com industry and fell also in electronics and services.

Mortgage applications virtually dried up during the latest week according to the Mortgage Bankers Association (MBA) Survey. A 10.6% decline during the last week of 2004 capped off several weeks of decline, dropped total applications to the lowest level since June and pulled the average level of activity during the year down nearly one third versus 2003.

Applications to purchase weakened notably and fell 13.7% to the lowest level since February. Nevertheless, the average level of purchase applications rose 15.0% last year versus 2003. During the last ten years there has been a 59% correlation between the y/y change in purchase applications and the change in new plus existing home sales.

Refi's fell a lesser 5.7% w/w but that followed a 7.9% decline the prior week and put an end to a year which saw applications to refinance halve versus 2003.

The effective interest rate on a conventional 30-year mortgage fell slightly to 5.94% versus an average 6.05% during 2004. The effective rate on a 15-year mortgage was 5.43% last week versus the 2004 average of 5.47%.

The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site here.

The minutes of the latest Federal Open Market Committee meeting can be found here.

"What Determines the Credit Spread?" from the Federal Reserve Bank of San Francisco is available here.