This edition of the Auto Market Weekly Summary includes updates on the latest GDP readings, trends in expenses and income, the personal savings rate, and consumer sentiment.

With just one week until the big show at NADA, let’s get through the snowstorm across the country and rest up for one of the most exciting weeks of the year in automotive!

Bottom Line Up Front

GDP growth remained remarkably resilient in Q3 2025, exceeding expectations at 4.4% and marking a meaningful acceleration from Q2’s already strong 3.8% pace. This growth continues to be driven primarily by the services sector, which expanded 5.3% during the quarter, with strength in information services, finance and insurance, and professional services. The durability of this services-led expansion has surprised many forecasters who anticipated a more pronounced slowdown as the year progressed.

However, the inflation picture presents a mixed signal for Fed policy. The Personal Consumption Expenditures (PCE) deflator rose 2.8% year over year through November, running slightly hotter than mid-year levels and remaining above the Fed’s 2% target. This persistent elevation in the Fed’s preferred inflation gauge complicates the path forward for rate cuts, as policymakers balance more robust economic growth against stubborn inflation, while we experience a slowing rate of job creation. For automotive markets, the combination of robust GDP growth and higher-for-longer rates creates a challenging environment: income growth rates are slowing, as ever-present inflation erodes buying power, while interest rates stay higher than many consumers – and dealers – would like.

PCE Inflation Reading and GDP Update

GDP rose slightly more than expected in Q3, driven by strength in consumption and exports, according to newly released data from the Bureau of Economic Analysis. Additionally, the PCE deflator, the Fed’s preferred inflation metric, rose slightly less than expected in October and November, indicating inflationary pressures that remain elevated but stable in Q4.

  • GDP increased at an annualized rate of 4.4% in Q3, up from an already strong 3.8% rate in Q2, indicating mid-year strength in 2025 following the rocky start earlier in the year from an ever-changing tariff landscape.
  • PCE inflation rose 0.2% month over month in October and November, respectively, and is now estimated to have risen 2.8% year over year, a tick higher than the Fed’s inflation target. The latest data puts PCE inflation roughly in line with expectations, suggesting the FOMC is unlikely to alter course in response to this release.
Personal Income and Spending

Last week, we received data illuminating personal income and consumer spending in October and November. These metrics indicate that real personal income growth has slowed considerably in Q4, while spending remains strong, and the savings rate continues to fall.

  • Personal income grew a meager 0.3% in November, bringing real disposable income to its lowest level of year-over-year growth since December 2022.
  • Real consumer spending rose by a healthy 0.3% in October and November, respectively, bringing November’s year-over-year spending growth to 2.6%.
  • In November, these increases were driven by consumer spending on durable goods and on some types of non-durable goods, such as apparel.
  • As a by-product, the personal savings rate has continued to fall each month since April, reaching 3.5% in November, lower by almost 1.5 percentage points year over year as disposable income growth lags the persistent increase in expenses.
Consumer Sentiment Readings Are Mixed

Consumer sentiment rose in late January, according to the University of Michigan’s report out Jan. 23, and more than people had predicted. However, Morning Consult is reporting a decline since the end of last year.

  • University of Michigan Consumer Sentiment increased to 56.4 at the end of January, and while it is down 21% from the same time last year, it is almost 7% higher than at the end of 2025.
  • The current index and expected index also increased in January, rising 9.9% and 4.4%, respectively.
  • Perhaps most importantly, expectations for inflation fell in the report, both on the 1-year and 5-year timeline. Consumers’ expectations of inflation a year from now declined to 4.0%, the lowest reading since last February, while the 5-year expectation declined to 3.0%, the lowest reading since December 2024.
  • On the other hand, Morning Consult’s consumer sentiment index is down 3.5% since the end of December and is lower by almost 8% against last year.
  • Gas price declines have moderated recently, with unleaded holding around $2.86 per gallon as of Jan. 23, down 9% from the same time in 2025.