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Investing Specialists

Automakers Throw Wrench in Economic Dashboard

The auto industry may continue to play havoc with economic indicators and potentially the real economy.

Last week was exceptionally quiet for economic indicators. The few that were issued showed a slowing of economic decline, but no radical improvement. Unfortunately, it appears that the auto industry is going to continue to play havoc with our economic indicators and potentially the real economy. Wall Street's reaction to the indicators, which are likely to be less favorable than those of the last two months, is apt to be negative. However, we continue to believe that the economy is in the bottoming process and that the second quarter is likely to mark the low point of this recession. The week of May 25 should prove more interesting with several key housing reports due early in the week.

Automakers Drive Erratic Readings

We have always liked initial unemployment claims as an early economic indicator, but now this number has begun to act more erratically. Initial claims were up significantly the week ending May 9 when they were announced and were revised even higher last week. The number was back down again for the week ending May 16 (from 643,000 to 631,000). The ups and the downs were largely driven by the announced closings of many Chrysler dealerships. GM is going to have to go through a similar program that will have an even bigger impact (although the employment effects will come later and will be more spread out). We view some of the dealership-related closings as relatively benign to the real economy over the intermediate to longer term. Many of the laid-off workers will find employment at the remaining dealerships that will see increased volumes and will need more employees in both sales and service. Given all the turmoil, we doubt that many of the recently laid-off dealership employees were going on wild spending sprees over the last several months either. However, while these former employees make their transition, they will continue to sway our indicators and the economy in the short run.