Auto Sales and Airline Traffic Are Booming - Can Retail Holiday Sales Follow?

Auto sales and airline passenger counts are experiencing a boom, but some retail sectors have not been able to keep up.
By Ted Reed ,

Entering the holiday shopping season, some key transportation sectors are at boom-time levels, a good sign for the overall economy but one that may have a mixed impact on retail segments.

This month is shaping up to be the best November ever for U.S. vehicle sales, according to Edmunds.com, which projected that 1,331,415 new cars and light trucks will be sold. That would put the seasonally adjusted annual rate, a closely watched industry metric, at 18.3 million, also a record, eclipsing November 2001 levels of 1.324,542 sales and a 17.7 million SAAR.

Meanwhile, airline passenger traffic during the 12-day holiday travel period that began Nov. 20 is expected to total 25.3 million passengers, the highest since 26.2 million in 2007. Projected traffic is up 3% from the same period in 2014.

On the heaviest travel day, Friday, Nov. 27, total traffic on U.S. carriers is projected to be 2.7 million passengers; Delta (DAL) - Get Report alone expects to carry more than 500,000 passengers on 5,700 flights.

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If the November SAAR hits 18 million, the U.S. monthly light-vehicle sales rate would top 18 million for three straight months for the first time ever.

"Not even a decade ago, November was a notoriously slow sales month, and it typically ranked as the third-worst month for sales in the calendar year," said Edmunds analyst Jessica Caldwell, in a prepared statement. "But in recent years, car dealers have joined other retailers to embrace Black Friday as a big sales driver.

"Last year, Thanksgiving weekend accounted for twice as many sales as any other weekend in November," Caldwell said. She expects the trend to continue this year.

Edmunds projected November industry sales to gain 2.5%, compared with the same month a year earlier, with Toyota's 4.9% gain leading the pack and Chrysler's (FCAU) - Get Report 3.4% gain leading the Detroit Three.

The Detroit News reported Tuesday that an estimated 142,000 autoworkers, including 60,000 in Michigan, will receive retroactive pay and $3,000 to $10,000 signing bonuses before Christmas, following contract ratifications between Detroit's Big Three and the United Auto Workers.

Collectively, contract bonuses from General Motors, Ford and Fiat Chrysler are estimated to put more than $400 million, before taxes, into the pockets of Michigan hourly union members. "Retailers across Metro Detroit and in plant communities across the U.S. are gearing up for the potential influx of buyers," the newspaper said.

Holiday travel is topping off a spectacular year for the airline industry, with the 10 largest publicly traded U.S. passenger carriers reporting $18 billion in profit for the first nine months. In the third quarter, Delta's pretax profit of $2.2 billion was an airline industry record, while

American

(AAL) - Get Report

 reported its best quarter ever with net income excluding special items of $1.9 billion.


Like the auto industry, the airline industry is unionized and willing to put money in the hands of workers.

"Our employees are not paid as high as Delta and United at this time and I think they deserve to be paid that in an environment where we're all doing well," American Chief Financial Officer Derek Kerr said two weeks ago at an investor conference.

The boom times extend to some but not all retailers. While the S&P 500 is up about 1% year to date, the S&P Retail Index SPDR (XRT) - Get Report is down 7%.

It's unclear whether the spending on air travel and autos shifts dollars away from other retail merchandise, such as winter apparel and pocketbooks, which are lagging, or even from electronics and home improvement goods, which remain pockets of strength in the sector.

Jefferies analyst Daniel Binder projected holiday retail sales will grow 2.5% to 3% this year, down from 3% to 4% during the same period a year earlier.

"Black Friday discounts are slightly more aggressive than last year, driven by discounts at apparel retailers," Binder wrote in a report issued Tuesday. "Survey says consumer is more cautious about the economy and spending this holiday. Growth forecasts are lower for holiday this year, including ours, but not terrible."

A bright spot, Binder said, is "a better electronics holiday than market anticipates and we are still upbeat on Best Buy, which is our top pick for the holiday."

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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