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Smoke on Cars

Auto Market Weekly Summary


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Article Highlights

  1. Economic growth slowed in Q4 but remained strong.
  2. Consumer spending accelerated more than expected in December.
  3. New and existing home sales improved.

The economic data released last week affirmed a strong ending to 2023.

Real GDP growth was 3.3% for the fourth quarter, which represented a slowing from the third quarter but was still very strong. All components of GDP were positive contributors, and while consumer spending decelerated, it remained at a healthy level for growth.

Consumer spending growth picked up in December more than expected. The savings rate declined as spending growth accelerated while income growth slowed modestly. Personal Consumption Expenditures (PCE) measures of inflation in December were at the lowest year-over-year levels since the spring of 2021.

New home sales and pending home sales grew in December as mortgage rates declined. November looked like the bottom for home sales.

Economic Growth Slowed in Q4 but Remained Strong

The first estimate of fourth-quarter real GDP growth showed a deceleration to 3.3% annualized from 4.9% in the third quarter. Personal consumption decelerated to growth of 2.8% from 3.1%. Spending on goods decelerated to 3.8% growth from 4.9% in the prior quarter, while spending on services accelerated to growth of 2.4% from 2.2%.

Increasing inventories combined with slowing residential investment resulted in a 2.1% increase in private domestic investment. Government spending also decelerated but remained positive. Exports increased more than imports, so all components of GDP positively contributed to growth in the quarter. Real GDP growth y/y accelerated to 3.3% from 2.9% previously.

December Consumer Spending Accelerated More Than Expected

Consumer spending growth accelerated in December more than expected. Personal income growth decelerated to a 0.3% gain from 0.4% in November.

Employee compensation growth decelerated to 0.4% from 0.5% in November. Government transfer payments increased 0.1% after declining 0.5% in November, but unemployment compensation declined 0.5%.

The gains in government payments were from Social Security and Medicare. Proprietors’ income was unchanged, down from an upwardly revised 0.4% gain in November. Personal income from dividends declined, but interest income growth remained strong.

Growth of spending on goods accelerated while spending on services remained stable and strong. Spending on durable goods increased by 1.1%, while spending on nondurable goods increased by 0.8%, and spending on services increased by 0.6%. Spending on motor vehicles and parts increased 1.7% following a flat month in November. With slower income growth but faster spending growth, the personal savings rate declined to 3.7%, its lowest level in a year.

Inflation Measures Are At Lowest Year-Over-Year Levels Since Spring 2021

The Personal Consumption Expenditure Index (PCE), the key gauge of inflation that the Fed follows, increased 0.2% after falling 0.1% in November. According to the PCE, overall price inflation was stable at 2.6% from a year ago, while the core inflation rate declined to 2.9% from 3.2%.

PCE measures of inflation are at the lowest year-over-year levels since the spring of 2021. Factoring in inflation, real spending increased by 0.5% in December, which was the same increase as in November.

New and Existing Home Sales Improved

New home sales increased in December, and prior-month sales were revised up. At an annualized pace of 664,000, new home sales were up 8.0% month-to-month and up 4.4% year-to-year. Compared to December 2019, new home sales were down 4.2%.

New home inventory increased 0.9% from the previous month and was up 0.4% from a year ago. The new-home supply declined to 8.2 months from a downwardly revised 8.8 months in November. The gain in new sales exceeded the decline in existing home sales in December, so total home sales were up 0.2% in December but down 4.8% from a year ago.

Like new home sales, pending home sales are new contracts signed on existing homes, and they also increased in December.

Pending home sales jumped 8.3% in December when a 2% increase had been expected because of lower mortgage rates in the month. Pending home sales were down 1.0% from a year ago.

The trend in pending home sales varied by region of the country with the Northeast declining but the Midwest, South, and West increasing in December. The trends year to year were also varied as the Midwest, South, and West were up, but the Northeast was down.

The housing market is very sensitive to mortgage rates, which peaked above 8% in mid-October but were 7.2% on average in December. The National Association of Realtors (NAR) is optimistic about growth in existing home sales in 2024 as affordability improves from declining mortgage rates. NAR expects a 13% increase in existing home sales in 2024, following declines in 2022 and 2023.

Jonathan Smoke
Chief Economist

Jonathan Smoke leads Cox Automotive’s economic and industry insights team, which tracks key metrics and trends impacting both the wholesale and retail markets for vehicles informed by the proprietary data from the company’s businesses and platforms. For 28 years, Smoke has focused on translating data and trends into relevant actionable insights for the industries that represent the biggest purchases that consumers make in their lifetimes: real estate and automotive. Smoke joined Cox Automotive in 2017.

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