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Light vehicle sales improve but Dow threatens support

By Colin Twiggs
May 23rd, 2016 2:00 a.m. EDT (4:00 p.m. AEST)

Advice herein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs. Accordingly, no reader should act on the basis of any information contained herein without first having consulted a suitably qualified financial advisor.



April light vehicle sales show a partial recovery from the previous two month's down-turn. This reinforces the view that consumer sentiment is improving, supported by the recent lift in retail sales.

Light Vehicle Sales

Electricity production has also turned up after a particularly worrying slide.

Electricity Production

Manufacturing PMI Composite Index turned down in April but remains positive (readings above 50 indicate expansion).

ISM Manufacturing PMI Composite Index

Construction continues to lag the rest of the economy, at 6.2 percent of nominal GDP for Q1 2016 compared to the normal range of 7.0pc to 8.0pc.

Construction percentage of Nominal GDP

This reflects the low level of private residential investment. Nonresidential investment recovered far quicker but is now declining; cause for concern.

Private Residential and Nonresidential Investment

The Fed continues to leak fresh money into the financial system despite talk of further rate rises. But low bank interest margins contribute to the slow-down in nonresidential investment, increasing bank reluctance to take on credit risk.

Large Bank Interest Margins

Our surrogate for GDP — average hourly wages x average hours worked x total private employment — indicates GDP growth is strengthening, suggesting nominal GDP growth around 4 percent. And real GDP of 3.0 percent if CPI is close to 1.0 percent.

Nominal GDP and Average hourly wages x Average hours worked x Total private employment

Uncertainty continues to weigh on financial markets, however, and Dow Jones Industrial Average follow-through below 17500 would warn of a correction to test the band of primary support at 15500 to 16000.

Dow Jones Industrial Average

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