This edition of the Weekly Market Summary includes updates on credit availability, consumer price inflation, producer price inflation, and retail sales.

Bottom Line Up Front

Auto credit availability continued to improve in July, with the Dealertrack Credit Availability Index reaching its highest level since December 2015, a valuable tool for dealers as affordability pressures persist. Inflation trends remain mixed. While price growth has cooled from earlier highs, headline Consumer Price Index is running up 3.4% year over year and producer prices are up nearly 5%, both well above the Federal Reserve’s target. This persistent inflation is eroding purchasing power, with real wage growth negative for four consecutive months. And now, that erosion is beginning to show up in consumer behavior: Bloomberg’s weekly consumer spending data has shown lower year-over-year trends for four straight weeks, with gas station spending the lone positive, and the July retail sales report showed the first month-over-month decline since last October.

AI investment spending aside, the economy remains heavily dependent on consumers that increasingly appear to be running out of room, or at minimum, catching their breath. Meanwhile, financial markets tell a different story: Equities continued to set record highs last week as the AI trade regained momentum, even as the Treasury sold 30-year bonds at their highest yield since 2001, a signal that investors remain wary of mounting government debt and its associated borrowing costs.

Still, the odds of a Fed rate hike declined this week, with futures markets now pricing in a 70% probability of no move at the September meeting. For dealers, financing costs for new-vehicle loans are beginning to tick higher. Even as some ownership costs like insurance continue to decline, lenders are passing along higher funding costs to consumers, a dynamic that could weigh on vehicle demand.

Credit Availability

Auto credit access rose again in July, with the Dealertrack Credit Availability Index climbing to its highest level since December 2015. The month’s gain was mixed across both channels and lender types, with a narrowing yield spread driving most of the index advance while a continued decline in subprime share was the primary offset.

  • Among channels, most segments improved month over month, led by Independent Used and All Used, while Certified Pre-Owned and Non-Captive New were the only channels to decline. Among lender types, three of four improved, led by Credit Unions and Captives, while the bank category was the lone decliner.
  • The yield spread narrowed 20 basis points (bps) to 6.57%, accounting for most of July’s index gain, with approval rates rising 37 bps to 74% and adding further support as the second largest contributor. A continued decline in subprime share served as the primary drag, pulling against the advance for a fourth consecutive month.
  • Risk indicators remained elevated: Loan terms held at the all-time high of 31.1% for loans exceeding 72 months for a second consecutive month, negative equity eased modestly from June but remained 269 bps above the year-ago level, and down payments were about 51 bps below year-ago levels.
Consumer Price Inflation

Headline inflation increased as expected in July, as energy prices declined again. Seasonally adjusted prices for both new and used vehicles increased in the month, while insurance costs declined as they continued to normalize this year.

  • The overall Consumer Price Index (CPI) rose 0.1% month over month in July, in line with consensus, with the year-over-year rate slipping to 3.4% from 3.5% in June. Shelter, up 0.1%, drove almost two-thirds of the increase. Grocery prices fell for the first time since March.
  • Energy prices fell 1.5%, and gasoline fell 2.9% on a seasonally adjusted basis, the second straight monthly decline after gains of 7% in May and 5.4% in April. Gasoline remains 24.6% higher year over year, unadjusted.
  • Used-vehicle prices rose 0.4%, and new-vehicle prices rose 0.1% (on a seasonally adjusted basis); motor vehicle parts and equipment rose 0.6%.
  • Vehicle insurance fell 0.3%, its sixth decline in the last seven months, continuing to normalize after several years of elevated increases.
  • Core CPI rose 0.2%, in line with expectations, with the year-over-year rate down to 2.5%, its lowest level since February.
  • Real wage growth has been negative for four straight months, as July’s CPI gain outpaced wage growth by 0.1 percentage point.
Producer Price Inflation

The July Producer Price Index (PPI) eased more than expected at the headline level, with final demand prices unchanged for the month as energy fell for a second straight month. Inflation in services was positive again, and core prices, excluding food, energy and trade, remained elevated year over year.

  • Final demand prices were flat in July on a seasonally adjusted basis, following a revised decline of 0.1% month over month in June and a gain of 0.5% in May. Seasonally adjusted core PPI (less food, energy, and trade) rose 0.4% month over month after increasing 0.1% in June.
  • On an unadjusted basis, final demand prices were up 4.7% year over year in July, down from 5.5% in June. Core prices were also up 4.7% year over year during the month.
  • Goods prices fell 0.7% month over month after falling 1.4% in June. Energy prices declined 3.1%, led by a 5.7% drop in gasoline prices, which contributed to more than half of the decline in July goods prices. Diesel and jet fuel prices also declined.
  • Services prices increased 0.2% month over month after rising 0.5% in June. Transportation and warehousing declined 1.8%, while automotive parts retailing increased 6.6% during the month.
Retail Sales

Retail sales fell 0.6% in July, well short of the 0.1% consensus gain and marking the first monthly decline since last October. The drop was concentrated primarily in two categories: motor vehicle and parts dealers and nonstore retailers.

  • Total retail and food services sales dropped 0.6% in July to $763.6 billion, following a revised 0.2% gain in June. Sales excluding autos and gas fell 0.2% for the month.
  • Nonstore retail sales fell 2.2%, following a 0.9% gain in June, after Amazon shifted Prime Day to late June this year from July, pulling forward sales that would normally appear in the July reading.
  • Sales at auto dealers dropped 1.8% after a 2.4% gain in June, while sales at gasoline stations fell 0.9% as prices at the pump continued to retreat from May highs.
  • Year-over-year growth slowed to 5% in July from 6.8% in June, with core sales, excluding autos and gas, up 4.8% year over year.
  • A few segments showed gains: Clothing and accessories rose 1.9%, and building materials gained 0.3%.