Larry’s note: Welcome to Trading with Larry Benedict, the brand new free daily eletter, designed and written to help you make sense of today’s markets. I’m glad you can join us.

My name is Larry Benedict. I’ve been trading the markets for over 30 years. I got my start in 1984, working in the Chicago Board Options Exchange. From there, I moved on to manage my own $800 million hedge fund, where I had 20 profitable years in a row.

But these days, rather than just trading for billionaires, I spend a large part of my time helping regular investors make money from the markets. My goal with these essays is to give you insight on the most interesting areas of the market for traders right now. Let’s get right into it…

With various types of economic data due for release next week, there will be a lot going on…

And that means this current volatility could easily carry over into next week.

Perhaps the most watched data will be the Balance of Trade figures on Tuesday, along with non-farm payrolls and other employment data next Friday.

We’ll come back to the latter in a moment…

But first, I want to write about another piece of data (also due on Tuesday) that I think is just as important: auto sales.

The Worrying Decline in Auto Sales

I’m sure you’ve seen plenty of stories about car dealers running out of stock…

About how a shortage of microchips has curbed production, resulting in dealerships being left with almost empty lots.

While the story isn’t new, the rapid decline in sales is much more recent. The way I see it, there doesn’t seem to be any quick fix…

The chip shortage goes well beyond cars. There are numbers of consumer electronic companies also competing for supply.

While there are moves to bring more microchip producers back onto U.S. shores, it’s going to take some time. You simply can’t build a high-tech manufacturing plant overnight.

In the meantime, auto sales numbers continue to decline… And that’s bad for the economy.

For the last five years, total auto sales (small cars to heavy trucks) has averaged out at roughly 17 million units per year.

All that fell off a cliff at the start of last year due to COVID…

From April 2020 onwards, however, sales numbers turned around. Total sales steadily increased all the way through 2020 and into April 2021.

At that time, the industry was on track for sales of over 18 million units for the year… That would have been its best year in over a decade.

Yet, since then, sales have again come to a grinding halt…

As of last month’s data, that dropped to an estimated 13 million sales for the year.

By anyone’s measure, that’s a dramatic decrease – especially in the space of just four months. Given the number of people the industry employs, it’s vital that these numbers turn around.

If you include all auto and parts manufacturers combined – on top of all their related dealer networks – it’s an industry that employs close to two million people.

That’s why auto sales will be my main focus next Tuesday… because ultimately, it’s about jobs. And that has broad implications for the economy.

Can Job Numbers Bounce?

Another piece of data that could offer a strong insight into the economy is non-farm payrolls (NFP). It will be released along with other data, like the unemployment rate, next Friday.

While the headline unemployment number receives plenty of headlines, I find NFP much more useful….

That’s because it simply tells you the number of actual jobs added (or lost) for the month.

The idea of NFP is to give the best gauge of stable, regular income producing work. And by extension, it’s a true measure of the strength of the private sector.

That’s why, in addition to farm-related work, it also excludes some government jobs, private households, and non-profits.

After a strong June and July – where around one million jobs were added each month – things changed dramatically.

New jobs added in August dropped down to just 235,000 – more than half a million below forecasts…

That made it the lowest number in seven months.

That’s why next Friday’s data is so important. It will tell us whether August’s number was just an aberration. Or if it’s a sign of things to come.

I’ll be sure to update you if anything stands out.

And before I go…

Last Friday, I spoke about two ways I gauge retail sales: durable goods and the Redbook. Data was released for both earlier this week, which I covered in yesterday’s essay.


Larry Benedict
Editor, Trading With Larry Benedict

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