The Lehmann
Letter (SM)
The stock
market is down this morning because eyes are on Europe and its debt crisis: How
will the European nations pay their debts? What do the recent elections mean?
What will happen to Greece? Will Europe survive austerity? How will Europe deal
with weak economic growth? Will the euro survive? These are legitimate
questions that require answers.
This letter
remains optimistic, but many events have yet to unfold.
Meanwhile,
except for housing, there is strength in the American economy. Recently the
Department of Commerce announced 14.4 million new-vehicle sales in April at a
seasonally-adjusted annual rate.
This year has
been running strong, with monthly auto sales over 14 million. The chart reveals good
progress from recession's depths when sales fell below 10 million.
New-Vehicle
Sales
(Recessions
shaded)
But the key
question remains: Without a robust housing recovery can auto sales break through
15 million and recover the 16 - 17 million pace they enjoyed before the recession?
Vehicle sales
are linked to housing sales because housing is our barometer on the strength of
consumer balance sheets. Housing can't recover until consumers, and the banks
that lend to them, have regained confidence in household balance sheets: That
net worth is adequate, debt is manageable and liquidity sufficient. When that
occurs household exuberance will spill over into new-vehicle sales and restore
autos' past strength. And strength in housing and autos would return the
economy to full employment.
Housing is
key.
(To be fully
informed visit http://www.beyourowneconomist.com/)
© 2012
Michael B. Lehmann
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