Auto Market Weekly Summary

The peak in daily new COVID-19 cases in the U.S. was seven weeks ago, but some markets are seeing new case growth because of new outbreaks and more testing. The national trend in new cases has stopped its decline recently. Some cities and states are considering re-imposing lockdowns.

The economic recovery can now be seen in improving consumer sentiment and declining unemployment numbers.

Jobless claims slow: Initial jobless claims were 1.5 million for the week ending June 5, which was a decline from the prior week’s 1.9 million. Now that jobs are starting to recover as businesses open back up, we are focusing our attention on continuing claims, which represent people who previously filed and were approved and remain on unemployment compensation. The latest data through May 29 show 20.9 million on unemployment benefits. That represents 13.7% of February’s job total. Continuous claims declined by almost 600,000 from the prior week. Now we must see how many jobs are brought back and how quickly.

Consumer sentiment improves: Consumer sentiment improved last week until the stock market declined late in the week, largely in response to the rising concerns about another wave of COVID-19 outbreaks. Our leading indicators point to positive recovery trends in the auto market in June. The initial May reading on Consumer Sentiment from the University of Michigan increased, driven by improving views of future expectations as well as current conditions. Consumers also saw improving buying conditions for vehicles and homes.

Consumer debt declines: The Federal Reserve reported that non-housing consumer debt declined in May with the biggest drop in the history of the data back to 1943. A massive decline in credit card balances was most of the decline, but a decline in auto loans and student loans also contributed.

Delinquency falls: Delinquency rates on auto loans declined again in May, but part of the reason for the decline is a result of accommodations, which freeze the status of the loan as of the accommodation being granted. Delinquency rates remain high for the time of the year when they are usually lower. The subprime delinquency rate in May was the highest for the month of May going back to 2006.

Inflation drops: Headline and core inflation fell again in May to their lowest level in years, as apparel prices, airline fares, and lodging prices continued to fall and pull aggregate prices down. Auto insurance also helped to pull inflation down. Not all prices are falling, as healthcare costs, new vehicle prices, household goods, and food prices rose. Housing costs are keeping the core inflation rate from dipping further. May likely saw the last of the pandemic-related price declines. With oil and gas prices now rising along with food and housing and many services, we are not likely to see further aggregate price declines. Real hourly earnings in May grew, but these strong gains are a function of wages shifting due to a loss of lower paying jobs combined with the inflation rate falling.

Check back on Smoke on Cars tomorrow for a video that will include updated data.