Key Highlights:

  • Vehicle-related inflation remained subdued in June, with vehicle prices declining month over month, according to the CPI, even as the overall CPI accelerated. We observed wholesale used prices higher in June, used retail prices were stable to higher, and new retail vehicle prices increased.
  • Auto sector retail sales outperformed the broader market in June, rising 1.2% month over month and contributing to stronger-than-expected retail growth.
  • Consumer sentiment around vehicle buying improved in July, reaching its highest level since January, as inflation expectations eased and interest rate perceptions improved.

Inflation

Inflation accelerated in June, with the headline Consumer Price Index (CPI) up 2.7% year over year. The CPI data reflects early signs of inflation reacceleration tied to tariffs.

  • Headline inflation, according to the CPI, accelerated as expected in June, as the CPI increased 0.3%, up from a 0.2% increase in May.
  • The core CPI, which excludes Food and Energy, was weaker than expected, with an increase of 0.2% when 0.3% was expected.
  • Year over year, headline CPI rose to 2.7%, up from 2.4% in May, and core CPI increased to 2.9% from 2.8%.
  • Private transportation costs rose just 0.1%, with new-vehicle prices down 0.3% and used-vehicle prices down 0.7%.
  • Motor vehicle parts rose 0.5%, and insurance costs edged up 0.1%.
  • We observed wholesale used prices increasing in June on a seasonally adjusted basis, according to the Manheim Used Vehicle Value Index, and used retail prices were stable to higher, and new retail vehicle prices increased.

Retail Sales

Retail sales grew more than expected in June, with growth in most categories. Adjusting for inflation, retail sales were still higher year over year.

  • Total retail sales rose 0.6% month over month, rebounding from a 0.9% decline in May and beating expectations for a 0.1% gain.
  • Auto sector sales outperformed the rest of the retail market, with motor vehicles and parts increasing by 1.2% compared to 0.6% growth excluding motor vehicles and parts.
  • Ten of twelve major retail categories posted monthly gains, led by miscellaneous stores (+1.8%).
  • Furniture, electronics, and appliances declined slightly (-0.1%), while sales at gas stations remained flat.
  • Year over year, nominal retail sales rose 3.9%, up from 3.3% in May.
  • Adjusted for inflation, using the CPI, retail sales increased 0.3% month over month and 1.2% year over year.

Residential Construction

Residential construction increased in June as permits and starts both increased because of increases in multifamily, as single-family continues to decline. Multi-family shows more promise for near-term growth.

  • Housing starts rose 4.6% month over month, beating expectations of 3.5%, while permits rose 2.0% against expectations for a decline.
  • Multifamily starts surged 30%, while single-family starts fell 4.6%.
  • Year over year, total starts were down 0.5%, with single-family starts down 10% and multifamily starts up 26.6%.
  • Permits followed a similar trend: single-family permits were down 8.4% year over year, while multifamily permits rose 2.9%.
  • The permitting pace of 1.397 million units exceeded the starts pace of 1.321 million, suggesting further growth ahead, especially in multifamily.
  • The multifamily permit-to-start ratio (531,000 vs. 438,000) indicates continued strength in rental construction, which is critical to easing shelter inflation.

Consumer Sentiment

Consumer sentiment is up so far in July as inflation expectations decline.

  • The University of Michigan’s preliminary July index rose 1.8%, slightly above expectations, though still down 6.9% year over year.
  • Views of current conditions and expectations both improved, with current conditions seeing the largest gain.
  • One-year inflation expectations fell to 4.4% from 5.0%, and five-year expectations dropped to 3.6% from 4.0%.
  • Consumers’ views of vehicle buying conditions improved to the best level since January, supported by better interest rate perceptions.
  • The daily index of consumer sentiment from Morning Consult rose 1.0% through July 17, reversing a 3.6% decline in June.
  • Views of current conditions and future expectations both improved in the first half of July, but views of current conditions have improved the most.