In another sign of a firming economy, the U.S. auto industry is having a good holiday season.
Retail sales of new vehicles this month are "significantly beating expectations," according to automotive information company J.D. Power & Associates. The firm tracks transaction data from more than 8,900 car dealers nationally.
Through the first two weeks of December, retail sales were tracking at an annual pace of 10.8 million units, the best of the year and a huge jump from the 8.5-million pace during the first quarter of this year.
Improvement in the auto market follows other recent positive economic signs, including a drop in claims for unemployment benefits that has sent the four-week average to its lowest level since August 2008, according to the U.S. Labor Department.
Also, the U.S. Commerce Department said this week that retail sales rose for a fifth straight month in November and noted that the biggest jump in department store sales in two years gave the holiday shopping season a strong start.
Fleet and commercial auto sales are off a bit from earlier this year, but J.D. Power noted that retail transactions are the most accurate measurement of "true underlying consumer demand for new vehicles."
"Even with the possibility that sales in the third week of December may be affected by the recent winter storms, the strength in sales during the second week is expected to continue through the rest of the month," said Jeff Schuster, executive director of global forecasting at J.D. Power. "As a result, it appears that 2010 will end on a high note."
The improved auto industry outlook prompted J.D. Power to increase its forecast for total light-vehicle sales this year to 11.6 million units, up 100,000 from its previous estimate and an increase of almost 11.5% from the 10.4 million vehicles sold in 2009.
"The continuation of the strong performance in the retail market through December may be the confirmation that the industry has been looking for that the recovery has been re-engaged," said Schuster. "The likelihood of an extension of the [2001 and 2003 income] tax cuts, in addition to a strong close in 2010, bodes well for the automotive market in 2011."
George Pipas, sales analyst at Ford Motor Co., said it was too early to judge whether December auto sales would be better than the last several months, but it was clear that the month would be among the strongest of the year.
"It is not too early to say that that the fourth quarter will be the highest sales rate for new vehicles since the third quarter of 2008," Pipas said.
The annual sales rate for light vehicles, including what's sold into the rental and commercial markets, in the quarter will top 12 million, he said. Though low by historical standards, that number is still better than the last several years "and suggests even higher auto sales in 2011."
Buyers seem more willing to replace older vehicles now compared with the last 12 to 18 months when they tended to postpone such purchases because of economic concerns, Pipas said.
"There is a lot more replacement demand to come. We are not near caught up," he said.
But the recovery doesn't seem to be evenly spread across the country.
"Almost every other market is healthier than California," said David Conant, chief executive of Newport Beach-based Conant Auto Retail Group, which owns nine dealerships from San Diego to Cerritos.
He said his stores were seeing small gains in "sales pace and momentum [but] we are still lagging the country in general and that is across all our brands — Honda, Ford and Toyota."
Nonetheless, Conant said he was optimistic about 2011, though he still expects California's economy to be held back by state budget issues and a lack of job growth.
And Pipas said two economic issues would continue to spook the auto industry. The jobless rate remains at a stubbornly high 9.8%, and the housing market remains depressed, he said.
"It is not like those are trivial components of our economy," Pipas said.