- Inflation decelerated in April, but remains at a 40-year high with jumps in food, gas and vehicle prices.
- Consumer debt grew; revolving credit posted largest monthly increase since 1970.
- Auto loan performance improved, as tax refunds helped consumers catch up on delinquencies.
COVID cases increased again as Omicron subvariants push case numbers up to levels last seen in mid-February. Measures of consumer sentiment have shown declines so far in May, as inflation and stock market declines weigh on consumer attitudes.
Inflation decelerated slightly in April, but rent and services saw gains.
Consumer credit grew at an accelerated pace in March as credit card spending growth set a record in the data series. Auto loan performance improved in April as more tax refunds were received, and access to auto loans improved in as well.
Tax refund season has started slowly this year but is delivering higher refunds. The month of May will be seeing an abnormal amount of refunds still being distributed as normally refunds are mostly completed by the end of April.
Inflation decelerated: Inflation decelerated in April, but strong gains in gas and food prices are still producing year-over-year inflation that is the highest in more than 40 years.
The headline aggregate measure increased 0.3% on a seasonally adjusted basis, which was down substantially from the 1.2% increase in March. The core CPI, which excludes Food and Energy, accelerated to an increase of 0.6% from a 0.3% increase in March. Categories with the largest April increases in prices were airline fares (+18.9%), eggs (+10.3%), and men’s suits (+7.2%). Rent growth accelerated to a 0.6% monthly increase from 0.4% in March. Lodging accelerated to a 2.3% gain from a 2.1% gain in March.
On a year-to-year basis, the core CPI decelerated to 6.2% from 6.5% in March as we are now lapping the big gains in 2021. The overall CPI decelerated to 8.3% from 8.5% in March, which had been the highest year-over-year increase since December 1981.
The categories with the largest year-over-year increases in April were fuel oil (+81%), motor fuel (+44%), airline fares (+33%), men’s suits (+25%), lodging (+24%), and used cars (+23%). The inflation data indicate a clear shift as inflation in goods is peaking while inflation in services is accelerating. Within goods, the major durable bucking the deceleration price trice trend is new vehicles.
The Bureau of Labor Statistics revised the new vehicle price index with better data that more accurately tracks what consumers have been spending on new vehicles. That new index indicates accelerating new vehicle inflation, which is what we are seeing in the new vehicle market, while used retail prices have been declining and reflecting normal depreciation.
Consumer debt grew: The Federal Reserve reported that Consumer Credit excluding housing-related debt grew by $52.4 billion in March, which represented a substantial acceleration of credit growth from February. Revolving credit (credit card balances) increased by $31.4 billion, which was the largest monthly increase in the history of the data back to 1970. Non-revolving debt (auto loans and student loans) increased by $21.1 billion, which was a decline from the $23.5 billion increase in February.
Loan performance improved: Auto loan performance improved in April as the flow of tax refunds helped consumers catch up on delinquencies. 60-day-plus delinquencies declined for the second month in a row, but they were up 20.8% from a year ago.
In April, 1.36% of auto loans were severely delinquent, which was a decline from 1.49% in March. Compared to a year ago, the severe delinquency rate was 24 basis points higher. In April, 5.16% of subprime loans were severely delinquent, which was a decline from 5.65% in March. The subprime severe delinquency rate was 103 basis points higher than a year ago. Higher delinquencies are still not leading to pre-pandemic levels of defaults, and defaults declined in April. Loan defaults declined 4.2% in April from March but were up 12.1% from a year ago.
Auto credit access expanded: Auto credit access expanded in April. 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.
Jobless claims increased: Seasonally adjusted initial jobless claims increased by 1,000 to 203,000 for the week ending May 7. Continuing claims, which represent people who previously filed and were approved and remain on traditional unemployment compensation declined by 44,000 w/w to 1.34 million as of the week ending April 30. That level of continuing claims was 420,000 lower than they were prior to the pandemic and the lowest since January 1970 when the labor force was half as big.
The broadest measure of continuing claims declined by 38,000 to 1.44 million in the latest data, which lags the traditional number. That total measure is down 270,000 over the last 4 weeks and is 663,000 lower than the pre-pandemic level.
Consumer confidence fell: The initial March reading on Consumer Sentiment from the University of Michigan declined 9.4% to 59.1 from 65.2 in April. Consumers’ views of current conditions and future expectations both declined similarly. The expected inflation rate was stable. Consumers’ views of buying conditions for vehicles declined to lowest reading this year.
The daily index of consumer sentiment from Morning Consult has also declined so far in May. As of last Friday, the index was down 0.4% from the previous week, leaving the index down 2.1% for the month so far.
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Jonathan Smoke is chief economist at Cox Automotive.