U.S. Vehicle Sales Rose in December

In December, U.S. sales of light vehicles rose 4.4% from the prior month to 16.75M units, according to the Autodata Corporation. The rise was to the highest level since July.

For the full year of 2006, however, vehicle sales fell 2.4% to 16.55M, the lowest level since 1998.

Improved domestic car sales lifted December vehicle sales with an 11.4% (3.8% y/y) gain but for the year domestic auto sales fell 1.4% versus 2005. Sales of imported autos also were strong last month and posted a 6.1% (8.5% y/y) gain and for the year rose 8.7%.

Imported light truck sales also rose 1.9% (19.0% y/y) last month to 1.51M units and for 2006 rose 14.4%.

Domestic light truck sales slipped for the third consecutive month. The 0.5% decline to 7.14M units (-12.4% y/y) still, however, garnered 84% of the U.S. market for light trucks during 2006.

Initial unemployment insurance claims popped 10,000 last week to 329,000 for the third consecutive weekly gain. The increase outpaced Consensus expectations for stability at 318,000.

During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.

The four-week moving average of initial claims also rose to 317,500 (2.3% y/y) though that was down from the early December high of 328,750.

Continuing claims for unemployment insurance dropped a sharp 76,000.

The insured rate of unemployment remained at 1.9% for the seventh consecutive week and equaled the average rate since February.

For December, announced job cuts reported by Challenger, Grey & Christmas fell a sharp 28.8% to 54,643. The three month moving average of layoff announcements also fell to 66,864, its lowest level since August.

During the last ten years there has been an 83% (inverse) correlation between the three month moving average level of announced job cuts and the three month change payroll employment.

Layoffs fell sharply m/m in the automotive (+77.0% y/y) and apparel (+1.4% y/y) and services (-57.0% y/y) industries.

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

Challenger also reported that announced hiring plans fell sharply m/m (-84.4% y/y).

UK corporations had a record operating surplus in Q3 2006 and earned record rates of return on capital. All private nonfinancial corporations returned 13.4% in gross operating surplus against gross capital stock and 15.2% on a net basis. The gross return compared with 13.2% in Q2 and 13.0% in Q3 2005. Before this latest period, only four other quarters since 1989 had been as high as 13%. The net return comparison is even stronger: Q2 was 14.9% and besides these two latest periods, the high since 1989 was 14.4%. Annual data go back to 1965 and the earlier years were no higher, giving greater weight to the current, precedent-setting performance.

Clearly some of this has to do with high profitability in the oil industry. The second graph shows the recent strength in that sector, referred to as the UK Continental Shelf, with net returns in the mid-40% range. Q2 2006 does, though, appear to have been a peak and current performance is well off the highs of the mid-1980s.

"Non-continental shelf companies" are also doing well. Nonfinancial services are the source of considerable gain, and "other" industries contribute too (these include utilities, construction, agriculture and mining, not published separately). Service companies have returned more than 19% on capital so far in 2006, about 0.75% above the previous record of 18.5% in 1998. Manufacturing, by contrast, is lagging. The operating surplus in those industries reached a peak of just under £35 billion in 1997, when the yield on capital was 15.3%. By 2005, the surplus had decreased to £20.6 billion and has apparently fallen further in the first three quarters of 2006. This is still, however, better than in the late 1970s and early 1980s, which saw surpluses nearly vanish, generating meager returns as low as 1.3% (1981) and less than 5% for 10 years running.

These rate-of-return data all come from Haver's UK database, sourced from the UK Office for National Statistics. While they are issued with considerable lag -- more than three months after the end of the quarter they describe -- they appear to be quite helpful in assessing aggregate and sector corporate performance. Note also that the operating surplus figures that form the basis of these returns were reported two weeks ago on December 21. The published capital data are only annual, but within some limits, they could be inferred from the returns and the surplus data that are available. The ONS cautions though that these data are subject to more revision than other of their series, a common situation with residual information like profits.