U.S. auto sales are on track to rise in April. And not just because of warmer weather. Consumer confidence is up and so are employment numbers.
Sales are expected to rise 8 percent compared to a year ago. Economists polled recently by Bloomberg forecast the annualized sales rate at 16.2 million—just below last month’s rate, which topped estimates.
“We are seeing improvement in the labor market and that means higher income for households,” said Millan Mulraine, senior economist for TD Securities. “People will feel confident to purchase these big-ticket items because of the improvement in employment.”
The economy added 192,000 jobs last month and jobless claims plummeted to nearly a seven-year, according to the U.S Labor Department. As jobless claims continue to inch downward, as expected, combined with strong manufacturing data, car companies will need more manpower to ramp up production on vehicles as demand pours in.
The warmer temperatures are playing a role too.
During the especially frigid winter months hitting most of the nation, “businesses were reluctant to hire because of depressing economic activity,” said economist, Russell Price at Ameriprise Financial.
But the uptick in labor force participation, along with acceleration in wages “means that the rest of the economy is improving for both consumers and companies,” he added.
Indeed, most sectors are re-accelerating. Retail sales, which encompass the auto industry, posted a 1 percent increase last month–the biggest gain the market has seen since September 2012. Consumer confidence remains at its highest level, despite a slight dip to 82.3 from 83.9 a month earlier. The solid retail numbers and growing buyer optimism in the economy has auto manufacturers’ remaining upbeat for strong annual sales.
So, if the April numbers come in high, as expected, is it time for companies to put a lid on hefty discounts?
Incentives offered in the first quarter were the highest they’ve been since the recession in 2007.
“Automakers were determined to make sure March sales momentum continued in April, putting sales back on track for 2014,” Larry Dominique, president of ALG and executive vice president of TrueCar, said in a statement.
Manufacturers are still flirting with high incentives because inventories have yet to go down to the normal daily supply. And, old models are still taking up space on lots that companies are desperate to get rid of, said Joshua Shapiro, chief economist at MFR.
Analysts’ say that automakers should start to scale back on robust incentives soon, but don’t expect them to disappear altogether.
“ Consumers are still very price sensitive, so people are still going to hold on tight to their wallets,” Shapiro said. “We need to see the labor market continue to improve, so consumers will have more income growth and the ability to spend.”
