- Inflation accelerated on spiking gas and food prices to the highest level in more than 40 years.
- Auto credit access expanded to highest level since January 2015. Auto loan performance improves.
- After delays, tax refunds are flowing.
COVID-19 cases are increasing again as the BA.2 omicron variant is spreading in the U.S., but cases remain relatively low. Data on consumer sentiment is mixed so far in April, as the University of Michigan index improved in the initial April reading, but the daily index from Morning Consult is down for the month as of last Friday.
Inflation accelerated in March to record the highest level of year-over-year inflation since December 1981. Retail sales slowed in March, as consumer spending is shifting because of the inflation.
Consumer credit grew at an accelerated pace in February. Auto loan performance improved in March with start of tax refund season. Credit eased again in March for auto loans.
Tax refund season started slowly this year, but critical mass has finally been achieved. Through April 8, 54% of projected refunds for the year had been issued, when in 2019 83% had been by the same week. However, the average refund is up 14% versus 2019 and up 10% from a year ago to the highest refund ever recorded at this stage of tax refund season.
Inflation soars: Inflation accelerated in March with spiking gas and food prices pushing year-over-year inflation to the highest level in more than 40 years.
The headline aggregate measure increased 1.2% on a seasonally adjusted basis, which was up from 0.8% in February. The core CPI, which excludes Food and Energy, decelerated to an increase of 0.3% from a 0.5% increase in February.
Categories with the largest March increases in prices were fuel oil (+22.3%), motor fuel (+18.3%), car and truck rental (+11.7%), and airline fares (+10.7%). Rent growth decelerated to a 0.5% monthly increase from 0.6% in February. Lodging accelerated to a 3.3% gain from a 2.2% gain in February.
On a year-over-year basis, the core CPI accelerated to 6.5% from 6.4% in February to reach the highest year-over-year increase since August 1982. The overall CPI accelerated to 8.5% from 7.9% in February to reach the highest year-to-year increase since December 1981. The categories with the largest year-to-year increases in March were fuel oil (+52%), motor fuel (+48%), used cars (+35%), lodging (+29%), airline fares (+24%), and car rental (+23%).
Weaker retail: Retail sales were slightly weaker than expected in March, and inflation again drove the month-over-month gain. The initial estimate showed a total monthly increase of 0.5% when an increase of 0.6% was expected. This followed an upwardly revised gain of 0.8% in February when the Ukraine conflict began and initiated the energy and commodity price surge.
Purchases at auto dealers underperformed the market as sales excluding motor vehicles and parts increased 1.1% while sales of motor vehicles and parts declined 1.9%.
It was another mixed month for retailers. Non-store retailers (-6.4%) and health & personal care stores (-0.3%), and auto dealers saw declines. Gas stations (+8.9%), general merchandise stores (+5.4%), and sporting goods, hobby, book, and music stores (+3.3%) were the largest gainers.
Retail sales were up 6.9% from a year ago. Compared to last year, auto dealers and electronics and appliance stores were down. The biggest year-over-year gainers were gas stations (+37%) and food services and drinking places (+19%). Retail sales are measured in dollars, so higher inflation plays a role in the increases being measured.
Consumer debt grows: The Federal Reserve reported that Consumer Credit excluding housing-related debt grew by $41.8 billion in February, which represented a substantial acceleration of credit growth from January.
Revolving credit (credit card balances) increased by $18 billion, which was the second largest monthly increase to last November for the pandemic period. Non-revolving debt (auto loans and student loans) increased by $23.8 billion, which was also an increase and the second highest monthly increase for the pandemic period.
Car loan performance improves: Auto loan performance improved in March as the flow of tax refunds helped consumers catch up on delinquencies. 60-day-plus delinquencies declined for the first time in 10 months, but they were still up 10.0% from a year ago.
In March, 1.49% of auto loans were severely delinquent, which was a decline from 1.58% in February. Compared to a year ago, the severe delinquency rate was 14 basis points higher. In March, 5.65% of subprime loans were severely delinquent, which was a decline from 5.99% in February. The subprime severe delinquency rate was 70 basis points higher than a year ago.
Higher delinquencies are still not leading to pre-pandemic levels of defaults, and defaults declined in March. Loan defaults declined 4.3% in March from February and were down 2.6% from a year ago.
Auto credit access expanded in March. Our Dealertrack Auto Credit Total Loan Index was the highest recorded in the data series going back to January 2015. All loan channels and most lender types saw improving credit access even as rates moved higher.
Consumer sentiment mixed: The initial March reading on Consumer Sentiment from the University of Michigan increased 10.6% to 65.7 from 59.4 in March. Consumers’ views of current conditions and future expectations both improved, with expectations improving the most. The expected inflation rate was stable. Consumers’ views of buying conditions for vehicles declined.
The daily index of consumer sentiment from Morning Consult also reflected improvement in the first week of April, but sentiment has declined substantially since. As of last Friday, the index was down 4.8% week over week, leaving the index down 2.7% for the month so far.
Jonathan Smoke is the chief economist at Cox Automotive.