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Smoke on Cars

Auto Market Weekly Summary


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Article Highlights

  1. Inflation reaccelerated in January.
  2. Retail sales and residential construction declined due to bad weather.
  3. Consumer sentiment improved, buoyed by lower vehicle prices.

According to the Consumer Price Index, inflation reaccelerated in January as the monthly increase was 0.3%, following a 0.2% increase in December. Headline inflation declined to 3.1% from 3.4% in December. 

Retail sales declined in January as weather disrupted sales in most categories.

Residential construction activity also declined in January, with housing starts falling by almost 15%. Winter weather was the main cause of the decline. The underlying construction data indicate growth in starts in future months. 

Consumer sentiment is up slightly so far in February. With vehicle prices falling, consumers’ views of buying conditions for vehicles improved to the best level since July 2021.

Inflation Reaccelerated in January

Headline inflation reaccelerated in January, according to the Consumer Price Index (CPI), but December’s increase was revised down. The headline aggregate measure increased 0.3% in January on a seasonally adjusted basis and was up from a downwardly revised 0.2% increase in December.

The core CPI, which excludes Food and Energy, increased 0.4%, which was an increase from 0.3% growth in December. Shelter saw an accelerating rise to 0.6% from 0.4%.

Transportation commodities saw a 1.1% decline, which was driven by a 3.4% decline in used cars, with new car prices unchanged. We observed new and used car prices declining in January in actual transaction data.

On a year-to-year basis, core CPI was steady at 3.9%, the lowest since May 2021. The overall CPI declined to 3.1% from 3.4% in December. Headline inflation saw its lowest level at 3.0% year over year last June.

Retail Sales Declined More Than Expected Due to Weather

The initial retail sales report for January showed a larger-than-expected drop in consumer spending. The 0.8% decline was worse than the 0.2% decline expected, and December sales growth was also revised down.

Harsh winter weather played a role in the sales declines, and the comparisons with 2023 were also more challenging because of larger social security increases delivered last year.

The auto sector declined more than the rest of the retail market as sales excluding motor vehicles and parts declined 0.6%, while sales of motor vehicles and parts declined 1.7%.

Category-level performance was more negative as eight of the 12 major categories saw sales declines. Furniture, electronics, and appliance stores (0.7%) and food services and drinking places (0.7%) had the largest gains. Building material and garden equipment stores (-4.1%) and miscellaneous stores (-3.0%) had the largest monthly declines.

Retail sales were up 0.6% year over year on a nominal basis, which was down substantially from a downwardly revised year-to-year increase of 5.3% in December and the weakest year-to-year performance since May 2020.

Compared to last year, half of the 12 major categories were down, with furniture, electronics, and appliance stores (-8%) and building material and garden equipment stores (-8%) being down the most.

Motor vehicles and parts were down 1.6% from a year ago, while non-store retailers (ecommerce) (+6.4%) was the category up the most.

Adjusted for inflation using the CPI, retail sales declined 1.1% for the month and were down 1.9% from last year.

Residential Construction Disrupted by Harsh Weather

Residential construction activity declined in January but was mainly disrupted by winter weather.

The seasonally adjusted annualized rate of starts declined 14.8% when no decline was expected, but December’s decline was revised into an increase. Permits declined 1.5% when a 1.3% increase had been expected, and the prior increase was revised down slightly. The decline in starts was in both single-family and multifamily homes, but multifamily was down 24.5%.

After the January decline, total starts were down 0.7% from a year ago but were up 8% compared to January 2019. Permits were up by 28.2% compared to 2019 in single-family but down by 1.3% in multifamily. The permit trends were mixed by type of home, as single-family increased by 1.6%, but multifamily declined by 7.9%. Permits were up 8.6% from a year ago in total, up 35.7% in single-family but down 26.3% in multifamily. Permits lead starts, so the permitting pace at 1.470 million units was ahead of the 1.331 million starts pace, which indicates that starts should increase in future months in both types of homes.

Consumer Sentiment Improved, Especially for Car Buying

The initial February reading on Consumer Sentiment from the University of Michigan increased 0.8% to 79.6 as views of current conditions declined, offset by increases in future expectations.

Expectations for inflation increased as the median expected inflation rate over the next year increased to 3.0% from 2.9% last month, but the longer-term view of inflation was steady at 2.9%. Recent inflation data and readings on gas prices in February indicate that consumers are indeed seeing price increases to start the year.

Vehicle prices continue declining, and consumers’ views of buying conditions for vehicles improved to the best level since July 2021.

The daily index of consumer sentiment from Morning Consult points to a small increase as well in the first half of February. As of February 15, that index had also increased 0.8% for the month. The average price for unleaded gas has increased 4.3% so far in February, according to AAA, but gas prices are still down 4% year over year.

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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