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Hot auto sales top Tuesday's watch list

New Ford cars are displayed on the sales lot at Veracom Ford in Burlingame, California.
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New Ford cars are displayed on the sales lot at Veracom Ford in Burlingame, California.

May auto sales are expected to be robust when they are reported Tuesday, even as the consumer showed just a so-so willingness to spend in April.

Analysts expect about a 17 million or more unit annualized selling rate when automakers report monthly vehicle sales, up from 16.5 million last month, according to Reuters. Also coming Tuesday is the April factory order report at 10 a.m. EDT.

Fiat Chrysler was first up Tuesday morning, reporting better-than-expected May sales of 202,227 vehicles - the best for the month since 2005. It said U.S. sales rose 4 percent in May on strong demand for the Jeep and Ram brands.

Ford May sales were also better-than-expected at 250,813 units. They were down 1.3 percent compared to Edmunds.com estimate of a decline of 3.4 percent.

Fiat Chrysler said Jeep sales rose 13 per cent. The brand is benefiting from a shift from cars to SUVs, which should be a pattern for other car makers as well. Jeep Cherokee SUV sales rose 23 per cent in May.

"There's been a lot of buzz about this car sales number in the industry, and the presumption is it's going to be pretty strong," said Stephen Stanley, chief economist at Amherst Pierpont Securities.

"A lot of people are talking over a 17 million unit pace. I'm going with 17.2. One thing is there were five weekends in May, and you had the way Memorial Day fell. The calendar helps."

Car sales might be going strong, but consumer spending as a whole was unexpectedly flat in April. The Commerce Department on Monday reported an unchanged reading in consumer spending for April, following a 0.5 percent increase in March. Incomes rose 0.4 percent and the savings rate climbed to 5.6 percent.

Spending flattened as consumers spent less on automobiles and on utilities as weather warmed up in April.

"The (vehicle) sales had been held down to some degree over the last few months by tight inventories," said Stanley. "So maybe they got a few more cars people want out in the showrooms. The automakers aren't going crazy the way they were a few years ago, but they're being pretty aggressive."

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Stanley said vehicle sales have been up and down due to the weather, but will come back to a normal level much quicker than other goods. Easy credit is helping, he said.

Monday's markets were fairly quiet as the month of June kicked off. Stocks edged higher, with the Dow up 29, at 18,040.

Traders are also watching developments in Greece's debt talks.

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Mark Luschini, chief investment strategist at Janney Montgomery, said the focus already is on Friday's U.S. employment report for May. According to Reuters, economists expect the creation of 225,000 nonfarm payrolls for May and an unchanged unemployment rate of 5.4 percent.

Besides the consumption data Monday, there was also ISM manufacturing data that showed an increase in factory activity in May to 52.8 from 51.5 in April. Manufacturing has been under pressure from the strong dollar, and the May numbers were boosted by new orders and factory employment.

"I can't help but think the market remains conflicted with not unambiguous good news and full valuations, and not heavy concerns about a correction but no impetus to buy," Luschini said.

He said investors could be waiting for an outcome in negotiations on Greece, which is due to pay the IMF $300 million euros Friday.

"There are nervous longs, picking around positions, but we just can't seem to get directionally any energy to break higher on to new highs, or to break lower," he said.

Luschini said the market is more likely to move higher than lower after the jobs report, because it is more likely to be a softer number. A weaker number could trigger speculation the Fed would be on hold longer to near-zero interest rates. "I think it's a number that's going to maybe match expectations but not necessarily exceed them," he said.

What to watch

Monthly vehicle sales are expected to top 17 million when May results are reported by automakers.

Factory orders for April are expected to show a decline of 0.2 percent, at 10 a.m. EDT.

Earnings reports include Medtronic, Dollar General, and Cracker Barrel.

Fed Gov. Lael Brainerd speaks at 10 a.m. EDT on the economic outlook and monetary policy.