Blog : Just Watch Somebody Screw It Up

by Ed Zwirn on September 4th, 2013

One of the twin pillars of the U.S. domestic economy - the auto sector - appears to be coming back to life.

This afternoon's report on auto and truck sales came out as a marked surprise on the upside. Auto sales reportedly rose 17% to a seasonally adjusted annual rate of 16.1 million units in August. This was the sector's best performance since October 2007 and handily beat out market expectations.

Depending on whether or not you are in the driver's seat, this surprise either constitutes good news or bad news.

The good news is obvious: A whole host of stocks, ranging from large-cap automakers to the smaller companies that supply them, are benefiting directly from this surge in buying. In addition, the news undoubtedly represents a good sign that growth of the U.S. economy may be accelerating. After real estate, which is also recovering, autos are the highest-ticket items most Americans ever buy, and the advent of deeper pockets can be viewed as an unmixed blessing.

That being said, today's auto sales report is also a sign that the economy is picking up significant speed just ahead of the upcoming Federal Reserve announcement on Sept. 18 and heightens the perception that the Fed may actually use this occasion to commence a "tapering" of its $85 billion bond buying program.

The Fed hinted as much today in its so-called Beige Book report, in which it said that growth was improving at a "modest-to-moderate" pace, with improvements seen across all of the central bank's districts. "Consumer spending rose in most districts, reflecting, in part, strong demand for automobiles and housing-related goods," the report stated.

Markets were apparently unfazed by this report, with stock prices rising across the board for the second consecutive day and (possibly) auguring the start of another bull run for everything from penny stocks to Detroit automakers.

But the elephant in the room continues to be the situation in Syria. A Senate committee has given the go-ahead for a strike against that country, and the debate is likely to rage over the wisdom of this strike over the coming week or two.

Whether this turns out to be the latest of a series of self-inflicted wounds to the U.S. economy remains to be seen. A dampening of the U.S. economy of course would be the least serious casualty of another Yom Kippur War in the Middle East. Assuming we get through this latest wrinkle, there will still be plenty of opportunity for our political leaders to screw things up. Don't worry: Be Happy!