Auto Market Weekly Summary

Daily new COVID-19 cases continue an upward trend. The growth continues to accelerate and is creating higher hospitalizations as well. In terms of economic impact, overall inflation remains subdued while retail sales were stronger than expected

Inflation in check: Headline and core inflation increased again in September but at a slower rate than in August, which was the highest level since March. However, there were big differences in trends in the underlying categories.

Categories of products and services that saw price declines included food at home, apparel, movie tickets, college tuition and auto insurance. Offsetting those declines were large increases in other categories like energy services, car rental fees, used vehicle values and food away from home.

Used vehicle prices alone were responsible for 0.2 points in the core increase. The CPI does not measure used vehicle prices as accurately or as timely as our data from Manheim, Dealertrack, and vAuto. The CPI is simply catching up on what we have been reporting for the last three months. Wholesale used prices peaked in August, and retail prices likely peaked in September.

Earnings stable: Real hourly earnings in September grew 3.3% from a year ago, which were unchanged from August and down from a peak of 7.5% in April. But these strong gains are a function of wages shifting due to a loss of lower paying jobs combined with lower inflation.

Retail sales rise: Retail sales in September were stronger than expected – more than twice the consensus expectation – as spending on clothing and at department stores picked up while spending growth on vehicles remained strong.

Auto sales outperformed the overall increase in sales as higher prices and a month with two extra selling days combined to see solid gains. Sales excluding motor vehicles and parts increased 1.5% while motor vehicles and parts were up 3.6%.

Surprisingly, clothing sales were up 11% from a month ago, and sales at retail department stores were up 9.7%. With the strong increase, retail sales are up 5.4% year over year. Categories with the largest year-over-year declines in September were spending at restaurants, gas stations, clothing and clothing accessories, and department stores.

Delinquencies rise: The auto loan severe delinquency rate increased in September for the first time since January even though an elevated level of loan accommodations prevents more than 2 million loans from degrading further.

Equifax estimates that 3.6% of auto loans were under an accommodation at the end of September, which was a decline from a peak of 8% at the end of June. In September, 1.26% of auto loans were severely delinquent, which was an increase from 1.21% in August. Of subprime loans, 4.54% were severely delinquent, which was an increase from 4.36%. The 30-day delinquencies rose 6.8% in each of the last two months, and 60-day delinquencies jumped 12.6% in September, which was the largest monthly increase in 27 months.

Consumer sentiment improves: Consumer sentiment has improved modestly so far in October, but consumers do not see this as a good time to buy a vehicle.

The initial October reading on Consumer Sentiment from the University of Michigan increased 1% to 81.2 from 80.4 in September. The Michigan Sentiment Index is down 19.6% from February. The underlying gauge of future expectations improved as current conditions declined.

Consumers saw buying conditions for vehicles less attractive driven by more negative views of both vehicle prices and interest rates. It is notable that the data reflect the worst buying conditions for vehicles since October 2011. By contrast, the buying conditions for houses improved and is near a high for 2020.

The improvement in the Michigan data so far in October is consistent with the improvement in consumer sentiment we have been tracking in the daily measure of consumer sentiment from Morning Consult. That index shows that sentiment improved again over the last seven days ending last week, with that index down by 18.4% compared to the end of February.

Jobs recovery slows: The jobs recovery has lost momentum, as an elevated number of Americans are filing for unemployment assistance each week.

The latest data show 10 million on traditional unemployment benefits, which are limited to six months of coverage. But 25.3 million remain on some form of unemployment benefits including pandemic unemployment assistance, which provides coverage beyond six months. By this point six months ago, more than 16 million people had filed for unemployment assistance, and those initial 16 million would no longer qualify for continued traditional assistance. Initial claims increased to 898,000, which is the highest weekly number in seven weeks and is extremely high by historical standards.

Check back on Smoke on Cars for a video that will include updated data.