Auto Market Weekly Summary

The May employment report showed a slight slowing in job growth that exceeded expectations at 390,000 jobs created, and the unemployment rate was also unchanged at 3.6%. Labor force participation increased, and growth in average hourly earnings year over year slowed.

Consistent with a strong labor market, continuing claims keep falling and are now at a new 52-year low.

New-vehicle sales in May were down 11% from April and were down 30% from a year ago. The seasonally adjusted annual rate of sales (SAAR) declined to 12.7 million vehicles from 14.5 million in April, as tight supply, record low incentives and worsening production challenges held back the usual seasonal gain. 

Consumer confidence declined in May with higher gas prices. Plans to purchase vehicles and homes both declined.

Job picture still bright: Job growth only slowed modestly in May and was better than expected with 390,000 jobs created. The prior two monthly numbers were revised for a net decline of 22,000 fewer jobs than originally estimated. Leisure and hospitality had the largest gain of 84,000 jobs, and all major sectors had gains over April.

However, within Trade, Transportation, and Utilities, the retail sector shed 60,700 jobs. Auto dealers lost 1,600 jobs, leaving employment down 78,700 or 6% below the February 2020 level. With the latest data, total payrolls are down by 822,000 from February 2020.

Unemployment stays low: The headline unemployment rate at 3.6% was unchanged from March and April and remains at a pandemic low and just 0.1 percentage points higher than the rate in February 2020. The labor force participation rate increased to 62.3% from 62.2% in April. Participation is down 1.1 percentage points from February 2020 and represents 2.9 million fewer people in the labor force compared to February 2020.

The underemployment rate, which is the broadest measure of unemployment, increased to 7.1%, from 7.0% in April. It was the second month in a row that the rate increased. Monthly average hourly earnings growth was steady at 0.3%, so earnings were up 5.2% year over year, which was down from 5.5% in April.

Jobless benefits lowest since 1969: As of May 21, 1.31 million people were on traditional unemployment benefits. That number was the lowest since December 1969, when the labor force was half as large. The broadest measure of continuing benefits increased slightly to 1.32 million, which was 784,000 lower than the 2.10 million level prior to the pandemic. Initial claims declined 11,000 to 200,000 in the latest week. Initial claims averaged 212,000 per week in 2020 in the weeks before the pandemic began.

May vehicle sales plummet: May total new-light-vehicle sales were down 30% year over year, with two fewer selling days compared to May 2021. By volume, May new-vehicle sales were down 11% from April. The May SAAR was 12.7 million, a 25% decline from last year’s 16.9 million and down 13% from April’s 14.5 million pace, which had been the strongest pace since January.

Including an estimate for fleet deliveries into dealer and manufacturer channels, we estimate that retail sales were down 31% in May, leading to an estimate Retail SAAR of 10.9 million, which is down nearly 27% from last May’s 14.8 million pace and down 13% from last month’s 12.5 million level. Due to weakness in retail sales, fleet share rose in May to 13.9% of all vehicle sales, up from 12.2% last May and up from 13.5% last month.

Tight supply and challenges in production are limiting the growth in new vehicle sales that would typically happen as the year progresses and are also keeping prices high and incentives low, which depressed demand. Incentive spending by manufacturers fell to an average of $1,164 in May, down 11.4% from April and down 61.8% from a year ago. The average transaction price exceeded the average manufacturer’s suggested retail price for the twelfth month in a row.

Certified pre-owned (CPO) sales were down 22% in May compared with a year ago and down 7% from April.

Consumer confidence declines: According to the Conference Board, consumer confidence declined 2.0% in May. The decline left confidence down 11.3% year over year. The underlying measures of present situation and future expectations both declined. Plans to purchase a vehicle in the next six months declined but was slightly higher than a year ago. Plans to purchase a home also declined and was higher year over year.

The Morning Consult daily index also declined in May, as it was down 4.4% for the month. The daily index from Morning Consult was at its lowest level so far for the pandemic on May 30, as inflation, declining equity markets and increasing cases of COVID driven by omicron variants weighed on consumer attitudes. The daily index declined through the first three days of June as surging gas prices increased to new nominal records.

JOIN US: The annual Cox Automotive Mid-Year Review will be held on Tuesday, June 28. The Industry Insights team will host a conference call to review industry performance through the first six months of 2022, ahead of the first-half close, Friday, July 1. RSVP to attend.

Jonathan Smoke is chief economist at Cox Automotive.