Auto sales jump in U.S. in positive signal for U.S. economy

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Washington Post Staff Writer
Tuesday, January 4, 2011; 10:27 PM

The nation's auto showrooms bustled with sales activity through the end of the year, data released Tuesday show, another sign that U.S. consumers have regained some of their appetite for spending big and a portent that the economy in 2011 will be better.

A rise in auto sales and production often precedes the economy in recovery after a recession, economists said, and comes after positive signs in recent weeks on holiday spending and manufacturing.

Auto sales in the United States jumped 11 percent over the year, with the strongest single gain coming with midsize sport-utility vehicles such as the Jeep Cherokee and the Honda Pilot. There were about 11.8 million cars and light trucks sold in the country in 2010, up from 10.4 million the year before.

The auto sales figures "bode well for the economy," said Robert Dye, senior economist with PNC Financial Services Group. "People have been sitting on their wallets for two or three years. With consumers being two-thirds of the economy in terms of the spending, this sign of consumer confidence matters a lot."

The recession instilled fear in the once-free-spending U.S. consumer, leading Americans embrace thrift. Economists have kept a close watch on the savings rate as a measure of their willingness to buy.

The rate of savings, which dropped to 1 percent before the downturn, rose during the downturn to a peak of 8.8 percent in May 2009. But the level has since come down again, to 5.3 percent, Dye said.

Consumers appear to have been similarly enthusiastic during the holiday shopping season. Retail sales figures Thursday are expected to have been the best since the recession began at the end of 2007.

The return of shoppers stands out amid some of the other chief economic indicators.

"Housing isn't there yet, jobs aren't there and credit hasn't opened up, but people seem to be buying - at least those who have jobs," said George Magliano, senior economist for IHS Automotive.

Magliano noted that it wasn't just the car sales numbers that portend a healthier economy but what was happening to prices and what consumers were paying for. Truck sales have risen, indicating more business activity. Moreover, cars are selling with fewer discounts. And when people buy, he said, they are choosing cars with all the bells and whistles.

"They seem to be buying top of the line," he said.

At least part of the reason that people are buying now is because they held off over the past two years as the economy struggled. The average age of a car in the United States increased from 9.8 years in 2007 to 10.2 years last year. Rising consumer confidence can unlock that demand, analysts said.

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