–Japan-related Supply Issues Not Expected for Another Month

By Kasra Kangarloo

WASHINGTON (MNI) – Domestic vehicle sales softened in the month of
April, though the economy’s recent momentum is expected to sustain the
strength of the auto market in coming months.

David Resler, economist at Nomura Securities, said that the auto
sector has reached a point where replacement buying has become evident
in sales volume — indicated by total U.S. vehicles sales above 13
million, which has been the level for the past two months.

“There’s a lot of pent-up replacement demand,” Resler said. “We’re
close to a replacement rate.”

Despite rising gasoline prices, consumer confidence surveys showed
continued strength in the month of April, even after a sharp fall in
March. The most recent measure of gas prices was $3.879 a gallon, still
below the record-high of $4.086.

Though the effects so far have been relatively muted, rising gas
prices could still compromise the strength of the economic recovery, as
production costs for suppliers increase and consumers’ discretionary
spending is strained.

The Institute of Supply Management’s survey of purchasing managers,
considered to be a reliable gauge of economic strength, has shown an
index above 60 for the past four months, indicating continued expansion
in the manufacturing sector even with higher production costs from
energy prices.

According to John Herrmann, fixed-income strategist for State
Street Global Markets, supplier issues related to the crippling tsuanami
that struck Japan in early March are not expected to materialize in
domestic sales for at least another month, noting that the market has
been strengthened by improved job growth.

“The backdrop right now is pretty decent for motor vehicles because
of devent private sector job growth,” Herrman said. “It’s showing
remarkable resilience.”

The private sector has added over 550,000 jobs this year, bringing
the unemployment rate to a two-year low of 8.8%.

A news release from Chrysler, which posted Q1 revenue of $13.1
billion on Monday, noted that supplies would be cut by between 25,000
and 50,000 over both the second and third quarters due to the effects of
the Japanese tsunami.

Sales by domestic automakers are expected at an annualized pace of
9.9 million units in April, according to a survey of economists by
Market News International, just below the March figure of 9.94 million.

— Kasra Kangarloo is a reporter for Need to Know News

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: MAUDS$,M$U$$$]