By Craig James

Record vehicle sales: New vehicle sales hit record levels in 2015. Australians bought 1,155,408 new vehicles in 2015, up 3.8 per cent over the previous year. Sales in December were up 2.9 per cent on the same month of 2014.

Car affordability: The CommSec car affordability measure indicates that it would take someone on the average wage to work for 23.8 weeks to purchase a new Ford Falcon, the best affordability estimate in data stretching back to the 1970s.

Services sector: The Performance of Services index fell by 1.9 points to 46.3 in December.

Chinese services sector: The Caixin purchasing managers index for the services sector fell from 51.2 to a 17-month low of 50.2 in December.

The vehicle sales data provides guidance on operating conditions for companies in the autos and components sector. The services activity data provides guidance for companies in the retailing, finance, healthcare and other non-mining and non-industrials sectors.

What does it all mean?

It is difficult to be negative about the economy when data shows that there were more new vehicles sold in 2015 than ever before. And it is not just so-called ‘standard’ vehicles being sold, but luxury vehicles are taking a bigger share of total sales.

It’s not hard to see why people are updating their rides. Car affordability is at the best levels recorded, employment is rising, interest rates are at record lows and wealth levels are at record highs. Car affordability is even stronger on a “quality adjusted” basis – vehicles built in 2015 are far superior to those sold in the early 1970s.

Vehicle sales should remain solid in 2016. Interest rates are unlikely to rise any time soon and car manufacturers are competing hard for business, restraining prices. In addition, all indications point to firm conditions in the job market. The area to watch is the housing market as softer home prices could restrain car-buying enthusiasm.

The latest services sector gauge doesn’t appear to line up with retail or business surveys, employment data or anecdotal evidence. Retail sales are growing at a “normal” 4 per cent annual pace; Christmas sales figures were solid; and employment in the services sector has been soaring. So the services gauge may be more of an outlier at present. Around 120 businesses were surveyed in the latest month. Still, it’s worth watching in coming months

What do the figures show?

New vehicle sales

New vehicle sales totalled 1,155,408 in 2015, up 3.8 per cent on a year ago and up 1.7 per cent on the previous record year in 2013. Passenger car sales fell 3 per cent in 2015 to 515,695 with sports utility vehicle (SUV) sales up 15.9 per cent to 408,459 and other vehicle sales rose 0.9 per cent to 231,254.

Toyota led sales in 2015 with a 17.8 per cent market share from Mazda (9.9 per cent), Holden (8.9 per cent) and Hyundai (8.8 per cent).

SUVs accounted for a record 35.4 per cent of new vehicle sales in 2015 or 44.2 per cent of combined passenger car and SUV sales.

Private sales increased by 3.7 per cent compared to 2014 and business sales increased by 4.9 per cent. Government purchases declined 1.4 per cent.

In December, 99,616 new vehicles were sold, an increase of 2,807 vehicle sales or 2.9 per cent on December 2014 (96,809 vehicle sales). The Federal Chamber of Automotive Industries said December 2015 had the same number of selling days as December 2014 (27) and this resulted in an increase of 104.0 vehicle sales per day.

Performance of Services

The Performance of Services index fell by 1.9 points to 46.3 in November.

AI Group notes “Four of the five of activity sub-indexes in the Australian PSI® were below 50 points in December, with sales and new orders especially weak. Stocks (inventories) were stable.

“Just two of the nine services sub-sectors in the Australian PSI® grew in December; health and community services plus personal and recreational services. Hospitality services (cafes and restaurants) were stable.

Communications remains the weakest services sub-sector.”

What is the importance of the economic data?

The Federal Chamber of Automotive Industries releases data on new vehicle sales on the third business day of the month. The data is a guide to consumer spending trends and provides guidance on operating conditions for companies in the Autos & components sector.

The Australian Industry Group and PricewaterhouseCoopers compile the Performance of Services Index (PSI) each month. The Australian PSI is the Australian equivalent of the US ISM services gauge. The PSI is one of the timeliest economic indicators released in Australia. The PSI is useful not just in showing how the services sector is performing but in providing some sense about where it is heading. The key ‘forward looking’ components are orders and employment.

What are the implications for interest rates and investors?

The autos and components industry sub-sector was the best performing sector on the ASX in 2015. Demand for cars, components and accessories should remain firm in 2016.

Aussie consumers will continue to drive the broader economy over the coming year, with key influences being rising employment, record wealth levels, low inflation and on-going improvements in technology.

The weak readings on the Chinese economy leave the open the door open for fresh stimulus measures.