That the US economy is hugely dependent on stimulus steroid is clear by the US automobile sales number released today for the month of September. The cash for clunkers programme ended in August and September was the first full month after the expiry of the programme. Result? Virtual across the board fall is sales number reported by the auto majors. Sales of GM and Chrysler nearly halved. General Motors sold some 156,673 vehicles in September, a slump of 45%. At Chrysler, total U.S. sales came in at 62,197, a decrease of 42%. In comparison, sales of Ford fell relatively less. A drop of only 5.1% (selling 114,655 vehicles as compared to 116,734 a year ago).
That the US economic pain is not yet over I clear from the fact that for the week ended Sept. 26, initial claims rose 17,000 to 551,000. This halted not only some minor decline seen in the previous three weeks (attributable more to technical factor like work day adjustment), but the decline was much sharper than an expectation of a mere reduction of 1,000.
Fact is, since the entire problem has been triggered by the collapse of housing market, only the stabilization of the same can possibly signal an end of the pain. However, it is quite likely that some improvement in recent numbers would not be sustainable. Consider this. In the U.S., there is an USD 8,000 first-time home buyer’s tax credit and this benefit is set to expire at the end of November. Given the example of the auto market, it is quite likely that the impact will be quite negative. On top of it, the Fed is running a programme of buying USD 1.25 trillion worth of mortgage-backed securities to support the housing market. Currently they are most of the way through the program and anticipate phasing it out at some time in 2010. That would be another blow to this sector. Add to this the likely continuation of foreclosures that would add to the unsold housing stock and things look far far away from being rosy.
Time to be very cautious indeed.