This edition of the Auto Market Weekly Summary includes updates on Q4 GDP growth, consumer income and expense trends, home builder sentiment, and vehicle affordability. On Friday, we received an update on tax refund data, showing the average refund is running 14% higher year over year, although it’s still early in the season. Our own data points to a strong start to tax refund season, as Manheim values have accelerated early in the year, suggesting the spring market may be getting an early start.

Bottom Line Up Front

The economy’s headline story last week was a sharp deceleration in Q4 GDP growth to 1.4%, though the federal government shutdown accounted for roughly a full percentage point of that slowdown, leaving the underlying pace of expansion closer to 2.4%, a more modest but less alarming picture. Inflation continues to drift in the wrong direction, with PCE rising to 2.9% year over year in December, keeping the Fed on hold and financing costs elevated heading into the spring selling season.

Adding to the policy uncertainty last week, the Supreme Court struck down the Trump administration’s use of emergency powers to implement most of its tariff increases, immediately dropping the effective tariff rate from 12.7% to 8.3%. However, markets largely shrugged off the ruling, correctly anticipating the White House will rebuild tariffs to prior levels through other legal tools — and the existing Section 232 tariffs on autos, steel and aluminum remain intact. The more meaningful risk is the uncertainty created during the transition, as the by-country and by-sector tariff mix could shift considerably, complicating planning for dealers and automakers alike.

The consumer picture is showing real strain beneath the surface. Expenses have outpaced income for eight consecutive months, the personal savings rate has fallen to its lowest level since late 2022, and higher-income consumers — typically the backbone of new vehicle demand — are showing the sharpest declines in sentiment since the start of the year. Meanwhile, overall consumer sentiment, while improving modestly month over month, remains well below year-ago levels.

The bright spots are meaningful, however. Vehicle affordability reached its best level since March 2025, driven by lower rates, falling transaction prices, and solid income growth — gains that appear sustainable even as OEMs pull back on incentives. Tax refunds are running 14% above last year’s pace, Manheim values are accelerating, and the used vehicle market is showing early signs of spring momentum. Housing starts climbed to their highest level since last summer, even as builder sentiment continues to soften under affordability pressure.

For dealers, the setup for spring is genuinely mixed: the macro headwinds are real, but the tailwinds — tax refunds, improving affordability, and easing credit conditions — give reason for cautious optimism as showroom traffic picks up.

Preliminary Q4 GDP Estimate and Consumer Metrics

The early read on U.S. economic growth slowed sharply in the fourth quarter, with real GDP growing just 1.4% on an annualized basis — well below Q3’s 4.4% pace — though the headline figure was meaningfully weighed down by the federal government shutdown earlier in the fall.

  • The partial government shutdown, which ran from October 1 through November 12, subtracted an estimated 1.0 percentage point from Q4 growth. Without that estimated drag, the underlying pace of expansion was closer to 2.4% — more modest, but still a reasonable slowdown from mid-year strength in 2025.
  • Growth was supported by gains in consumer spending, driven by higher services spending and partially offset by a decline in goods. Investment also continued to contribute, as spending on AI infrastructure added to the economy, while federal government spending and exports acted as a drag on the headline number.
  • On the inflation front, the PCE price index — the Fed’s preferred measure — rose 2.8% year over year in Q4, up from 2.7% in Q3, moving slightly further from the Fed’s 2% target. The December reading came in at 2.9% year over year, suggesting a modest acceleration heading into 2026.
  • Personal income grew 0.3% against November levels and is higher by 4.3% over the last year. However, personal expenses grew faster in December, rising 0.4% month over month and 4.7% year over year — marking the eighth consecutive month where expense growth outpaced income gains, resulting in negative real income growth when adjusted for expense inflation. The gap between the two is narrowing, however, declining to 0.4 percentage points for the second month in a row, so the direction of travel is at least moving the right way.
  • The personal savings ratedeclined to 3.6% in December, its lowest level since Q4 2022, as persistent inflation continues to pressure consumer balance sheets.
Builder Sentiment and Home Starts

Measures on new home building showed mixed results in the latest data, with builder sentiment slipping further in February while housing starts climbed to their highest level since last summer.

  • Builder confidence in the market for newly built single-family homes fell one point to 36 in February, coming in below expectations, according to the NAHB/Wells Fargo Housing Market Index.
  • Housing affordability remains a key concern, as persistent inflation continues to reduce the price range most buyers can realistically afford. The percentage of builders cutting prices edged down to 36% from 40% in January, though the average price reduction held steady at 6%. Sales incentives remained flat month over month at 65%.
  • The three index components showed mixed results in February, though all remained below the 50 breakeven marks separating positive from negative sentiment. The current sales index held steady at 41, while the future sales index declined to 46 from 49 in January, and buyer traffic fell two points to 22.
  • Housing starts grew 6.2% month over month in December, reaching an annualized rate of 1.404 million — the highest level since July. Despite the monthly gain, starts remain 7.3% below the same period last year.
Vehicle Affordability

New-vehicle affordability improved in January, according to the Cox Automotive/Moody’s Analytics Vehicle Affordability Index. The index reached its best level since March 2025, as lower transaction prices and declining loan rates more than offset reduced manufacturer incentives. The average new-vehicle price fell to $49,191 while the estimated average auto loan rate dipped to 9.52%, helping push the typical monthly payment down to $756 — the lowest since last March. Strong income growth of 3.7% year over year was also good news for the affordability index.

  • Weeks of income needed to purchase a new vehicle declined to 35.6 from 36.2 in December, and the affordability index improved 1.8% year over year — meaning consumers are in a meaningfully better position than a year ago, even as incentives ran 6.4% below prior-year levels.
  • Macro tailwinds are doing the heavy lifting: lower interest rates — down 26 basis points year over year — and rising incomes are outpacing the pullback in manufacturer support, suggesting affordability gains are sustainable even if OEMs continue to reduce incentive spending.
Consumer Sentiment

Measures of consumer sentiment improved month over month in February across both surveys we monitor — the University of Michigan and Morning Consult. However, even with the monthly gains, sentiment remains lower than last year.

  • The University of Michigan finalized its February consumer sentiment reading at 56.6, an increase of 0.4% against January. Sentiment remains down 12.5% against last February — a notable improvement from the year-over-year declines of nearly 20% observed last fall, as we begin to comp against weaker readings from early 2025.
  • Inflation expectations showed slightly better trends in the report: consumers’ one-year inflation expectation declined to 3.4%, down from 4.0% in January, while the five-year expectation held steady at 3.3%.
  • Morning Consult’s daily sentiment index as of mid-February was higher by 0.5% against the end of January, though still lower by 5.6% against the same time last year.
  • Perhaps most noteworthy — particularly in light of stronger tax refund activity — is a divergence emerging across income groups. Higher-income consumers have seen sentiment fall sharply since the start of 2026, with those earning above $250,000 down 9.1%, and the $150,000 to $200,000 and $100,000 to $150,000 ranges down 7.8% and 8.4%, respectively. In contrast, consumers earning under $50,000 have seen sentiment rise 2.8% since year-end, though this group still reports the lowest absolute sentiment levels overall.