Smoke on Cars
Auto Market Weekly Summary
Monday February 15, 2021
- Jobless claims are showing a gradual decline but remain high.
- Auto loan performance continues to deteriorate.
- University of Michigan index Consumers saw buying conditions for vehicles plunge to the lowest level since 2008.
The downward trend in new daily COVID-19 cases continues. Improving conditions are leading to rollbacks of restrictions, and economic activity and employment should improve as a result. For now, traditional jobless claims are seeing gradual declines, but pandemic assistance claims are growing, and 20.4 million people remain on some form of benefits.
Joblessness remains high: Jobless claims in the headlines are showing further declines, but revisions and growth in pandemic assistance claims challenge views that unemployment is improving.
Traditional continuing claims declined by 145,000 to 4.54 million as of January 30. However, in the latest data 20.4 million Americans remain on some form of unemployment benefits including pandemic unemployment assistance, which provides coverage beyond six months. Initial claims fell by 19,000 to 793,000, which is trending towards the average level we had through October and November, but even the lowest level in the fall was higher than the worst week in the Great Recession.
Inflation low; energy rises: Inflation was again low in January, but energy prices are on the rise. Wholesale vehicle values are rising too.
The trends in headline and core inflation separated in January. The headline aggregated measure increased 0.3%, while the core Consumer Price Index (CPI), which excludes food and energy, was unchanged on a seasonally adjusted basis from December. The January headline increase was boosted by a 3.5% increase in energy costs as unleaded gasoline rose 7.1%. Very low increases in food and rent helped contain the overall price index along with declines in many other products and services. On a year-over-year basis, the core CPI was up 1.4%, which was down from December’s 1.6% and low by historical standards. The overall CPI was up 1.4%, which was unchanged from December
Vehicle prices dip for now: According to the CPI, new cars and trucks increased 0.2% on a non-seasonally adjusted basis in January; used cars and trucks fell 0.8%. Cox Automotive data show retail price declines in January, but the declines are off record highs. Average transaction prices on new light vehicles, according to Kelley Blue Book, fell 0.8% in January. The average retail used vehicle price on Dealertrack fell 1.6%. However, we are seeing a decidedly different trend in wholesale prices, which normally lead retail prices. The non-seasonally adjusted Manheim Index increased 1.0% in January.
Consumer credit rises: Consumer credit increased in December, and the initial estimates are likely too low relative to what we’ve been seeing in retail auto sales. The Federal Reserve reported that Consumer Credit, excluding housing-related debt, increased in December by $9.7 billion. Revolving credit (credit card balances) declined by $3 billion while non-revolving debt (auto loans and student loans) increased by $12.7 billion. November’s credit estimates were revised up. December saw retail vehicle sales improve, so this credit growth deceleration, if driven by auto credit estimates, is likely to be revised up.
Auto loan performance deteriorates: Auto loan performance continues to deteriorate, but performance remains better than a year ago and better than what has happened in previous recessions. Accommodations continue to be above normal, and more stimulus support will likely help keep loan performance from deteriorating dramatically.
Loan delinquencies and defaults have been low because of stimulus support and loan accommodations. Equifax estimates that 2.5% of auto loans were under an accommodation as of January 25, which was down from 2.8% on December 29 but was 1.8 percentage points higher than February. That 1.8 represents more than 1.3 million auto loans that likely would have fallen into delinquency and possibly complete default by now.
In January, 1.44% of auto loans were severely delinquent, which was an increase from 1.40% in December. 5.21% of subprime loans were severely delinquent, which was an increase from 5.03%. 60-day delinquencies have increased in each of the last six months, but delinquencies were down 12% year over year in January. Better than normal loan performance and strong vehicle values have helped auto credit access improve in recent months. Our Dealertrack Auto Credit Availability Index measured loosening of credit in September, October, November, and December, but credit conditions tightened in January, and credit remains tighter than a year ago.
Consumer sentiment mixed: Consumer sentiment on the Morning Consult Index increased again over the seven days ended February 11, but other measures for February indicate declines.
The initial January reading on Consumer Sentiment from the University of Michigan, based on surveys collected January 27-February 10, declined a surprising 3.5% to 76.2 from 79 in January. With the decline, the Michigan Sentiment Index is down 24.6% from February 2020.
The underlying gauges of current conditions and future expectations both declined. Consumers saw buying conditions for vehicles plunge to the lowest level since 2008. Buying conditions for houses also declined.
In sharp contrast, the daily measure of consumer sentiment from Morning Consult had shown a strong 10-day streak of improvements, resulting in strong gains over January (+2.4%) and December (+5.5%). That index is down by 19.1% compared to the end of February 2020.
Check back on Smoke on Cars for a video that will include updated data.