GDP is off to a poor start in 2017.

Let’s investigate that statement with a look at auto sales, inventories, a recap of year-end 2016 industrial capacity, and weather-related GDP.

GM, Ford, Toyota, and Fiat Chrysler all reported sales declines in January. supply is rising. Manufacturers announced factory shutdowns last month. Are more shutdown announcements coming?

car-inventory

The Wall Street Journal reports U.S. Auto Sales Cooled in January.

General Motors Co. sold 195,909 vehicles in the month, compared with 203,745 a year ago, for a sales decline of 3.8%. Retail sales declined 4.9%.

Ford Motor Co.’s sales, meanwhile, edged 0.7% lower to 171,186. The Detroit auto maker reported its retail sales climbed 6% while fleet sales declined 13%. Ford said its popular F-series pick up trucks—up 13%—saw their best sales start for the year since 2004.

And Fiat Chrysler Automobiles NV posted an 11% drop in sales to 152,218 light vehicles. Fleet sales led the way down with a 31% decline as the Italian-U.S. auto maker works to cut back sales to the daily rental segment.

Analysts called for a broad range of results in January. Edmunds.com estimating a relatively flat performance for the industry compared with the same period, while WardsAuto.com forecast a 4.4% decline and a much lower seasonally-adjusted annual rate of sales than what was recorded in December or the prior January.

December, fueled by record incentive-spending by auto makers, was among the best months for U.S. light-vehicle sales in history, helping the industry set a second-consecutive annual sales record. Auto makers are planning to build slightly more vehicles in North America in the first quarter than the same period a year ago, signaling optimism that 2017 full-year sales will remain in the 17.5-million range that was reached in each of the past two years.

Low gasoline prices, cheap financing and generous discounts are expected to continue propping up demand in the auto industry. JD Power recently estimated auto makers spent an average of $3,614 on average per-vehicle incentives in January, substantially less than December but 7% higher than January 2015.

Edmunds analyst Jessica Caldwell points out it is tricky to use January—the lowest volume month—as a bellwether for how auto sales will trend for the year.

Toyota Leads Declines

Bloomberg reports Toyota Leads U.S. Sales Drops as Carmakers Keep Discounts Coming.

Toyota Motor Corp. led carmakers reporting U.S. sales declines in January, as an industry trying for another record year piled on discounts to keep showrooms busy.

Deliveries fell about 11 percent for both Toyota and Fiat Chrysler Automobiles NV. Sales also dropped for General Motors Co. and Ford Motor Co., while Japan’s Nissan Motor Co. and Honda Motor Co. reported gains.

Automakers spent about $645 more per vehicle on discounts, about $3,635 on average in January, according to ALG, which projects car and truck resale values. The industry relied on rich incentive offers and deliveries to fleet customers including rental-car companies last year on the way to a seventh straight year of expansion. Strong demand for pricier pickups and sport utility vehicles should ensure automakers will still manage to keep profits rolling.

“There is certainly weakness to start off the year,” Jeff Schuster, senior vice president of forecasting for LMC Automotive, said by phone. “It’s not unexpected given the overheating of sales, thanks to incentives in December.”

4th Quarter GDP

Recall that 4th quarter GDP was a huge disappointment. I commented on January 27: 2016 GDP Slowest Growth in 5 Years: Many Troubling Items; Three Hikes Really?

Private Inventories Added 1% to 4th Quarter GDP

  1. Private inventories added a full percentage point to GDP. That’s an inventory build that was not even needed.
  2. Motor vehicles and parts contributed 0.29 percentage points. Will that last?
  3. Residential investment added 0.37 percentage points. Will that last with interest rates rising?
  4. Net exports reflect rising oil prices, and a rising US dollar that has not hurt exports that much, yet.

What About the Weather?

Had the weather in January been brutally bad, or even just plain bad, auto analysts would have been quick to point that out.

Instead, January was well above normal. And inventories are stacking up, despite high sales.

January Chicago Temperatures – Actual Highs vs. Average Highs

chicago-weather

I calculate a net value of +132. That’s an above average performance of +4.26 degrees per day. It would have been much greater except for a nasty five-day stretch from January 4th through January 8th.

Weather Related GDP

December was colder than normal, boosting utilities and thus industrial production. I expect a “surprise” snapback in industrial production for January.

I commented on the January effect in Formulas Don’t Think: Investigating Weather-Related GDP.

With January warmer than normal, with auto sales down anyway, and with inventories high and rising, 1st quarter GDP may be much lower than most expect, including the Fed.

Four hikes? Three hikes?

Really?! I ask that question regardless of what the job report on Friday says.

Mike “Mish” Shedlock