- Used vehicle sales set records.
- Home sales decline but turn faster than any time in history.
- Fed says inflation is transitory.
The trend in new daily COVID-19 cases declined again last week, leading to improved economic activity.
Consumer sentiment gained ground but remains down for May despite increasing economic activity and jobless claims continuing to fall. New construction, especially starts, fell in April as labor and material shortages took a toll. Existing home sales also declined in April, but home prices kept climbing to new records. Supply is also tight in the vehicle market. Used vehicle values continue to increase in May, leading to new records.
The Fed is starting to think about when it might be time to taper, so that had markets on edge and likely sets the stage for similar volatility in the weeks ahead.
Used vehicle sales hit record: Used vehicle sales have continued a strong pace that saw April post the best retail sales month in history. With supply remaining tight, used vehicle values continue to appreciate according to the Manheim Index. The increase in the first 15 days of May reflected a deceleration from the pace in April. Still, the seasonally adjusted index increased 4.6% comparing the first 15 days of May to the month of April. The non-seasonally adjusted monthly change was 4.8%.
Last week saw a 1.8% increase in three-year-old Manheim Market Report (MMR) values, which was still a strong increase but down from 1.9% the prior week and down from a peak increase of 2% earlier in April. Retail prices are also increasing and starting to accelerate, but the retail increase thus far lags the increase in wholesale.
Construction falls: Residential construction declined in April as labor and material shortages caused a substantial decline in starts. The seasonally adjusted annualized rate of starts tumbled 9.5% but permits held steady and increased 0.3%.
After the April decline, starts were up 67% from last April and up 22% compared to April 2019. Permits were up 61% year-over-year and up 32% compared to 2019. Permits lead starts, so the permitting pace at 1.76 million units exceeds the 1.57 million starts pace with a widening gap.
Starts should continue to increase to close that gap, but challenges, like skyrocketing lumber costs and labor shortages, may hold back activity this spring.
Underneath the totals, the split in the composition of new construction is no longer as wide as it had been last year. Single family permits declined 4% in April while multi-family permits increased 9%. Compared to 2019, single family permits were up 43%, and multi-family permits were up 14%
Home sales drop: Existing home sales fell again for the third month in a row in April. The existing home sales SAAR declined 2.7% in April to 5.85 million, which was the slowest pace since June 2020. At this rate of sales, existing home sales were up 33.9% from a year ago and up 11.4% compared to April 2019.
Inventory increased in April to 1.16 million units. April inventory was down 20.5% year-to-year. The National Association of Realtors also reported that 88% of the homes sold in April were on the market for less than a month, and the typical time on market was 17 days, which was a new record low. The months’ supply of homes for sale increased to 2.4 months, which is the highest since October, but still less than half of what is considered normal. The median sales price, now at a record $341,600, represented a 19.1% year-over-year gain. Home sales were down in every region except the Midwest
Fed says inflation transitory: The Fed released the minutes from its April meeting and revealed broad consensus on the belief that inflation should be transitory as “…various measures of longer-term inflation expectations remained well anchored…” Federal Open Mark Committee (FOMC) members also saw that “…supply chain bottlenecks and input shortages may not be resolved quickly and, if so, these factors could put upward pressure on prices beyond this year.”
As a result, there was more debate than expected regarding the need to start talking about a plan for adjusting the pace of asset purchases. This was not the message received in Chairman Powell’s press conference following the meeting when he emphatically said, “It is not time yet.” As a result, the financial markets were more on edge about the possible timing for “taper talk.”
Consumer sentiment bumpy: The daily index of consumer sentiment from Morning Consult has improved modestly in 5 of the last 7 days, so sentiment has improved 0.3% in the last week. However, sentiment is still down 2.1% for the month, following gains in February, March, and April. The Morning Consult Index as of today is down 12.7% since February 29, 2020.
Jobless claims drop: Jobless claims fell again in the latest reported data. As of May 1, 16 million remained on some form of unemployment benefits, and that total declined by 887,000 from the prior week. With the American Rescue Plan, pandemic assistance and enhanced unemployment benefits were set to continue through September, but a growing number of states are acting to end the enhanced benefits sometime this summer to encourage beneficiaries to return to work. Initial claims declined last week to 444,000, which is the lowest weekly level yet for the pandemic and down 34,000 from the prior week.
An Auto Market Report video will be published in Smoke on Cars on Tuesday, June 8.