Auto Market Weekly Summary

The declining trend in new daily COVID-19 cases continued last week. Consumer sentiment improved last week, but all measures of consumer confidence saw declines in May.

Economic activity is continuing to pick up, and first-quarter GDP growth accelerated. Spending grew again in April even with a slide in income from March with the huge impact of stimulus payments. Inflation is at the highest level in more than a decade. New jobless claims fell again to their lowest level for the pandemic.

New and pending home sales declined in April, as housing strength is fading with modestly higher mortgage rates and supply challenges including inventory, materials and labor.

Economic activity picks up: The second estimate of the first quarter real GDP increase was unchanged from the first estimate of 6.4% (annualized). Personal consumption was revised up to 11.3% from the original estimate of 10.7% as increasing government transfer payments and increasing activity especially in March drove a surge in consumer spending.

Spending on goods was revised up to a gain of 25.6% while spending on services was unchanged at the originally estimated gain of 4.6%. Gross private investment was revised up to a decline of 4.7%. The government spending increase was revised down to 5.8%. Since the aggregate real GDP level was essentially unchanged, real GDP growth year over year remained 0.4%.

Spending rises: Consumer spending increased 0.5% in April as personal income fell 13.1% and disposable income fell even more following a drop from the American Rescue Plan’s payments having been mostly distributed in March. The decline in personal income was driven by a 71% decline in other government transfer payments, but unemployment benefits declined 8.5% while wages increased by 1%.

Spending on durable goods increased 0.5% in April, while spending on nondurable goods fell 1.3%, and spending on services increased 1.1%. Spending on motor vehicles and parts increased 4.1%. The personal savings rate declined to 14.9% from 27.7% in March.

The Personal Consumption Expenditure Index (PCE), the key gauge of inflation that the Fed follows, increased 0.6% from March. Overall price inflation according to the PCE increased to 3.6% year over year in April to the highest level since September 2008. The Fed’s target is an average inflation level over time of 2%.

Home sales fall: New home sales, which are based on new contracts signed, declined 5.9% in April. The decline was less than expected but the prior increase in March was revised down substantially so that the estimated level of sales was much lower than had been expected.

Home sales declined in every region except for the West. New home inventory was up 2.6% compared to March but down 1.6% from a year ago. Supply remains tight at 4.4 months but is at the highest level since May 2020. In April, 38% of the new homes sold were on homes not yet started, while 35% were under construction, and only 27% were completed, finished units.

With the decline in April, new home sales were up 48% from a year ago and up 25% compared to 2019. Pending home sales, which are based on contracts signed on existing homes declined 4.4% in April from March, leaving sales up 51.7% compared to the pandemic lockdown period last year. Contracts were down compared to April in every region except the Midwest.

Consumer confidence slips: Consumer Confidence, according to the Conference Board, declined 0.3% in May and left confidence down 11.6% compared to February 2020.

Of particular concern in the Conference Board data was a substantial erosion in future expectations while the view of the present situation continues to improve. Plans to purchase a vehicle in the next 6 months slid to a 13-month low. Plans to purchase a home also declined in May to a more than 9-year low.

The final reading on Consumer Sentiment from the University of Michigan declined 6.1% in May and left sentiment down 17.9% from February 2020. The index reflected a slight improvement from the original estimate earlier in the month. Each of the measures for current conditions and future expectations declined for the month.

The index of consumer sentiment from Morning Consult has also declined thus far in May. That index lost quite a bit of ground in the middle part of the month before seeing some modest improvement in recent days. The Morning Consult Index was up 1.3% week to week as of last Friday and is down 0.9% for May and down 11.6% since February 29, 2020.

Jobless claims drop: As of May 15, 3.64 million Americans remain on traditional unemployment benefits, which are limited to at most six months of coverage, but 15.8 million remain on some form of unemployment benefits including pandemic unemployment assistance, which provides coverage beyond six months. That broadest measure of benefits has declined by 760,000 over the last four weeks. Initial claims declined last week to 406,000, which is the lowest weekly level for the pandemic. Weekly initial claims averaged 216,000 in the first 11 weeks of 2020 leading up to the pandemic.

An Auto Market Report video will be published in Smoke on Cars on Tuesday, June 8.