Auto Market Weekly Summary

The peak in daily new COVID-19 cases in the U.S. was April 24, eight weeks ago, but the trend is again increasing as many states are now seeing new outbreaks. The economic recovery can now be seen in improving retail sales, new residential construction, and recovered wholesale used vehicle values

Virus cases rise: The new case trend is increasing again as many areas of the country are seeing an uptick in new cases. Most of the growth is happening in Sun Belt states from Virginia to Florida and across to Arizona and California. Some cities and states are contemplating re-imposing lockdown orders. 

Auto sales positive: Despite these concerns, we continue to see mostly positive trends in the auto market. June should see more improvement, especially in used vehicle sales. However, we saw slowing momentum last week.

Retail sales jump: Retail sales jumped in May as most of the country began to open up. Sales increased 17.7% from April, which was a record increase and more than twice the growth that analysts expected. Auto sales contributed substantially and outperformed the overall increase in sales. Retail sales, excluding autos, increased 12.4%. Despite the big increase, retail sales remained down 6.1% year over year.

Joblessness stuck: Unemployment is not declining quickly. Initial jobless claims were 1.5 million for the week ending June 12, which was a small decline from the prior week’s 1.6 million. Continuing claims, which represent people who previously filed and were approved and remain on unemployment compensation, hit 20.5 million, which represents 13.4% of February’s job total. Continuous claims declined by less than 100,000 from the prior week, which was a disappointment. 

We need to see bigger declines in order to have unemployment fall before enhanced unemployment compensation expires at the end of July. If we don’t see much lower unemployment and/or an extension of benefits, we’ll see more households experiencing financial distress in August and later months. 

Consumer sentiment drops: Consumer sentiment declined this week. According to Morning Consult’s daily index, consumer sentiment has been volatile since Memorial Day and is down 21.5% since the end of February.

Manheim Index hike: The Manheim Used Vehicle Value Index increased 6.6% comparing the first 15 days of June to the month of May. This brought the Index to 146.1, which is up 4.0% from June 2019. If the mid-month value of the Manheim Index holds for the full month, wholesale values will have completely recovered from the March and April declines. Recovered wholesale demand is sending prices higher much as it typically does in tax refund season each year.

As used vehicle retail sales have been strongly recovering, retail supply has fallen to below normal levels, and wholesale supply is quickly declining and getting closer to normal levels. 

Housing improves: Residential construction increased in May, but housing starts, in particular, did not meet expectations. Starts can be impacted by weather, lack of labor, and lack of materials. Permits are down 19% year over year. Permits lead starts, and the fact that permits are higher at a 1.220 million pace against only 974,000 starts pace means that starts should grow substantially this summer.

Record low mortgage rates are driving mortgage applications up substantially. New contracts in May and subsequent months for homes to be built should lead to recovering residential construction activity later in the year.