Auto Market Weekly Summary

This edition of the Auto Market Weekly Summary includes updates on the Fed decision, retail sales, new-vehicle affordability and Manheim values through mid-September.

Bottom Line Up Front

The Federal Reserve delivered the widely expected rate increase last week, but the move was not without controversy. Many economists question whether the labor market is strong enough to justify further tightening, arguing that the current rise in energy prices reflects a supply shock that may prove temporary rather than a lasting trend. Adding to the uncertainty, much of this year’s gross domestic product growth has been driven by artificial intelligence investment. Reports last week that leaders at OpenAI, Anthropic and Google are raising security concerns about the pace of AI development could create a future headwind for that growth engine.

Still, the inflation signals are hard to ignore, and diesel is the fuel to watch most closely. Diesel prices set all-time records throughout last week. Because diesel moves goods through the supply chain, including trucking, freight and agriculture, sustained increases tend to flow into downstream prices, from groceries and retail goods to the cost of delivering a vehicle to a dealer’s lot. Gas prices are also approaching the highs seen in May. Together, these pressures have Fed officials concerned that policy may not yet be restrictive enough to slow inflation. Fed Chairman Kevin Warsh noted that inflation disproportionately burdens lower-income consumers and steadily erodes purchasing power, a strain reflected in five consecutive months of negative real wage growth.

Adding to the pressure, the 10-year Treasury yield remains near 5% even after last week’s increase, keeping mortgage rates elevated and adding stress to an already strained housing market. Auto demand is not immune. New-vehicle purchases and homebuying have historically moved together, so a constrained housing market tends to pull vehicle demand lower over time.

Despite that backdrop, consumer spending has posted solid gains, and the auto market has benefited. However, new-vehicle sales, like broader consumer spending, remain skewed toward higher-income buyers benefiting from the wealth effect. Some replacement demand also remains on the sidelines, as the rising average age of vehicles and higher repair costs push a small but steady stream of consumers to replace older units. Financing costs are edging higher: New-vehicle loan rates have risen about 20 basis points over the past two months, while used-vehicle rates are up about 10 basis points. Those moves are unlikely to change the average payment substantially, but they may weigh more on consumer psychology and further discourage big-ticket purchases.

The bottom line: The auto market remains resilient for now, but financial stress on the average consumer is building even as the wealth effect supports higher-end demand.

Fed Decision and Economic Projections

The Federal Open Market Committee increased the target range for the federal funds rate by a quarter percentage point last week, the first increase since summer 2023. The vote was unanimous, with the committee citing solid economic growth and resilient consumer spending despite elevated energy prices. The move was widely expected, but members also signaled through the Summary of Economic Projections, or SEP, that they expect another rate increase this year. The news initially pushed the 10-year Treasury yield briefly above 5% before it eased later in the week.

• FOMC members cited strong productivity and increased capital investment, driven by spending on artificial intelligence infrastructure and equipment, as additional reasons to expect stronger economic growth.
• The labor market also was cited as a positive, with payroll growth showing resilience and unemployment holding steady at 4.1%. The three-month rolling average for job creation is 71,000.
• The SEP showed that FOMC members expect stronger gross domestic product growth in 2026 and 2027 than they projected in June. The median forecast rose to 2.3% for 2026 and 2.4% for 2027. Unemployment is expected to remain at 4.1% in both years, down from the 4.3% projected in June.
• Inflation projections, as measured by the personal consumption expenditures price index and the core index, were each revised 10 basis points higher for 2026. The PCE projection rose to 3.7%, and the core PCE projection increased to 3.4%. Projections for 2027 were unchanged, while the 2028 outlook increased slightly.
• Combined, the changes pushed the projected federal funds rate 30 basis points higher for 2026 and 50 basis points higher for 2027, to 4.1% from 3.6% in the previous SEP.

Retail Sales

Retail sales rose 1.2% in August from July, with broad-based gains across most categories rather than increases concentrated in one or two areas. Higher fuel costs remained an important contributor.

• Headline retail and food services sales rose 1.2% in August, compared with a revised 0.5% decline in July. Core sales, excluding autos and gasoline stations, also increased by 1.2%.
• Sales at motor vehicle and parts dealers rose 0.6% after falling 1.8% in July. Gasoline station sales increased 3.1% as pump prices climbed, contributing about a quarter of a percentage point to the headline gain.
• Year-over-year growth accelerated to 6% for total sales and 5.6% excluding autos and gasoline stations. Gasoline stations posted the largest annual gain at 21%, while miscellaneous store retailers led core categories with 14% growth.

New-Vehicle Affordability

New-vehicle affordability slipped in August as higher vehicle prices and lower incentives outweighed the benefits of lower rates and income growth, according to the Cox Automotive/Moody’s Analytics Vehicle Affordability Index. Still, the number of income weeks needed to purchase a new vehicle fell 1.2% from August 2025, indicating improvement year over year.

• The average transaction price, or ATP, rose 0.5% month over month, the largest monthly increase in several months, while income increased 0.3%. The ATP was 1.9% higher year over year, compared with a 3.8% increase in income. Income growth therefore continued to outpace the rise in transaction prices.
• Incentives declined a modest 0.6% from July and were down 7.3% year over year, continuing the trend seen since midyear.
• The typical monthly payment was $770 in August, up 2.6% year over year and 0.5% from July.
• The median income needed to purchase a new vehicle rose to 35.5 weeks in August from 35.4 weeks in July but fell from 35.9 weeks a year earlier.

Manheim Mid-Month Valuation Trends

Manheim values continued to decline in early September, leaving the index slightly lower year over year for the first time in 2026. Gas prices have risen nearly 10% since the end of August and are moving back toward the May highs above $4.50. At the same time, depreciation is accelerating during a period that is generally weaker seasonally.

• The Manheim Used Vehicle Value Index fell to 206.2, a 1% decline from the end of August. Wholesale values are now down 0.4% year over year.
• Nonadjusted wholesale vehicle prices declined 1.1% to start the month and are down 1.1% year over year.
• Sales conversion averaged 55.8% since the end of August, 1.4 percentage points lower than a year ago.