<p>I’ve been writing about anecdotal reports that US home and auto sales suddenly picked up in the past few weeks. They’re the most interest-rate-sensitive part of the economy so they’ve been hit hard by Fed moves. However with rates ebbing early in the new year, a torrent of pent-up demand emerged.</p><p>I think it’s telling.</p><p>It shows that consumer still have money to spend and still want those houses and cars. Vehicle production was curtailed by the pandemic and still hasn’t caught up. Covid-19 also inspired many people to buy homes and start families; many were initially priced out but that demand is still there.</p><p>He notes that some of it is seasonal but that can’t explain it. Earlier this week, Manheim reported that its used vehicle index rose 0.8% m/m and that caught many off guard. </p><p>Before that data, many analysts were expecting auto sales to round trip.</p><p>Today Morgan Stanley is out with a note looking deeper and finding the same thing but still without explanations.</p><p>They spoke with a Ford dealer who said:</p><p>“We’re just blown away by how strong January was… the best used car month we’ve had in three years.“Here’s the explanation: The consumer is still flush and the Fed has more work to do. That’s precisely what was <a target=“_blank“ href=“https://www.forexlive.com/news/4-trading-themes-for-2023-1-never-underestimate-the-spending-power-of-the-us-consumer-20230101/“ target=“_blank“ rel=“follow“>my #1 theme</a> at the start of the year when everyone else was saying a recession was coming.</p><p>The knock-on investment here is simple: Homes and cars. The risk is that the Fed hikes to something so painful (6%? 7%?) that it truly ends the party. The second thing is that pent-up pandemic savings will eventually run out, likely at the end of 2023 so next year could be double-trouble if the Fed hikes further and the money runs out.</p>

This article was written by Adam Button at www.forexlive.com.