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Car sales climb 5.4% and offer fresh proof of strong economy

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The numbers: Sales of new cars and trucks in the U.S. rose 5.4% in February, rebounding from a slow start at the start of the year and offering fresh evidence of the strength of the economy.

Automobile sales increased at an annual rate of 15.8 million last month from 15 million in January, according to Ward’s Intelligence. Economists had forecast a 15.4 million annual rate.

The figure reflects how many new vehicles would be sold in the entire year if the same number were purchased each month as were sold in February.

Car sales got off to a slow start in January, but that was largely because the holiday was so busy. Sales in December rose at the fastest rate in almost three years.

A severe cold snap also kept buyers away in January, analysts say.

“Some of these sales could be ‘payback’ from consumers who wished to purchase in January but for whatever reason were kept from making the purchase due to unusually tough weather,” said macroeconomic strategist Will Compernolle of FHN Financial.

“Either way, this is an encouraging sign that January was not necessarily representative of overall first-quarter consumer spending,” he said.

Vehicle sales revved up in 2023 to the highest level in four years despite a sharp increase in interest rates. Last year, an estimated 15.5 million new vehicles were sold in the U.S.

Sales are expected to increase again in 2024, but high interest rates could weigh on purchases in the first half of the year.

Borrowing costs could fall by summer, however, if the Federal Reserve reduces interest rates as expected. That could help turbocharge sales.

Car purchases play a big role in retail sales and overall consumer spending, the main engine of the economy. Strong car sales also tend to be an indicator of a strong economy.

Consumer spending was quite strong in the second half of last year, and it appears that outlays haven’t tapered off much in the first quarter of 2024.

The economy is on track to expand at a healthy annual rate of 3% or more, forecasts show.

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