- Year-over-year inflation in May was the highest since December 1981. Vehicles played an outsized role in the monthly acceleration.
- Access to auto loans declined in May, a first decline in a year.
- Consumer sentiment fell to new lows. Confidence in car-buying is the lowest since 1978.
Financial markets sold off Friday with the report on the Consumer Price Index showing inflation accelerating again in May. Inflation is also weighing on consumer attitudes as measures of consumer sentiment have shown further declines.
The gains in inflation were broad based, but energy, food, shelter and vehicles played outsized roles in the monthly acceleration. The Manheim Used Vehicle Value Index also increased in May.
Consumer credit grew at a slower pace in April, but credit card spending growth remains very high. Auto loan performance was mixed in May as delinquencies increased but defaults declined. Credit tightened in May for the first time in a year for auto loans.
The job market remains strong with continuing claims at very low levels.
Inflation accelerated: Headline inflation, according to the CPI, accelerated in May delivering year-over-year inflation that was the highest since December 1981. The headline aggregate measure increased 1.0% on a seasonally adjusted basis, which was up substantially from the 0.3% monthly increase in April.
The core CPI, which excludes Food and Energy, saw an increase of 0.6%, which was unchanged from April. Increases were broad based, but several categories that consume the highest share of household budgets saw large increases in prices in May, such as food (1.2%), rent (0.7%), fuel oil (18%), utility gas service (9%), gasoline (4%), new vehicles (1%) and used vehicles (1.9%).
On a year-to-year basis, the core CPI decelerated to 6.0% from 6.2% in April. The overall CPI accelerated to 8.6% from 8.3% in April. The categories with the largest year-over-year increases in May were fuel oil (110%), motor fuel (49%), airline fares (37%), eggs (32%), utility gas service (31%) and lodging (22%).
Within the CPI, vehicles saw lower year-over-year inflation, with new vehicles slowing to 11.9% vs. 12.6% in April and with used vehicles slowing to 16% from 22.6% in April.
The Manheim Used Vehicle Value Index likewise is showing declining year-over-year inflation on wholesale used vehicles as well. The index increased 0.7% in May from April, leaving the index up 9.7% from a year ago, which was a decline from 14% in April.
Consumer credit grew: The Federal Reserve reported that Consumer Credit, excluding housing-related debt, grew by $38.1 billion in April, which was a deceleration form the jump of $47.3 billion in March driven by the largest growth in revolving credit (credit card balances) in the history of the data back to 1970. In April, credit card debt grew by $17.8 billion compared to the $25.6 billion recorded in March. Non-revolving debt (auto loans and student loans) increased by $20.3 billion in April, which was a decline from the $21.7 billion increase in March.
Auto loans mixed: Auto loan performance was mixed in May as severe delinquencies increased but defaults declined. Delinquencies of 60-plus days increased 3% after having declined in each of the two prior months, and delinquencies were up 30.1% from a year ago.
In May, 1.40% of auto loans were severely delinquent, which was an increase from 1.36% in April. Compared to a year ago, the severe delinquency rate was 33 basis points higher. In May, 5.36% of subprime loans were severely delinquent, which was an increase from 5.16% in April. The subprime severe delinquency rate was 138 basis points higher from a year ago.
Higher delinquencies are still not leading to pre-pandemic levels of defaults, and defaults declined again in May. Loan defaults declined 10% from April but were up 11.2% from a year ago. Auto credit access declined in May. Our Dealertrack Credit Availability Index for all types of loans declined for the first time in a year from a record high in the data series going back to January 2015. Most loan channels and lender types saw credit access tighten driven by widening yield spreads and declining subprime share.
Jobless claims rose: Seasonally adjusted initial jobless claims increased by 27,000 to 229,000 for the week ending June 4. Non-seasonally adjusted claims increased by just 1,000 as most of the headline increase was from the seasonal adjustment.
Continuing claims, which represent people who previously filed and remain on traditional unemployment compensation were unchanged from the previous week at 1.31 million as of the week ending May 28. That level of continuing claims was 457,000 lower than they were prior to the pandemic.
The broadest measure of continuing claims declined by 36,000 to 1.28 million in the latest data, which lags the traditional number and is not seasonally adjusted. That total measure is down 157,000 over the last 4 weeks and is 819,000 lower than the pre-pandemic level.
Consumer confidence plummets: The initial June reading on Consumer Sentiment from the University of Michigan declined 14% to 50.2, which was a new record low for the index. Consumers’ views of current conditions and future expectations both declined substantially, and the expected inflation rate increased to the highest level since 2008. Consumers’ views of buying conditions for vehicles declined to the lowest reading in the history of the survey dating back to 1978.
The daily index of consumer sentiment from Morning Consult has also declined so far in June. As of last Friday, the index was down 1.1% from the previous week, leaving the index down 2.6% for the month so far and to a new low for the index.
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Jonathan Smoke is chief economist at Cox Automotive.