Auto Market Weekly Summary

Key Highlights:

• Consumer spending on motor vehicles and parts dropped 6.1% in May, the steepest monthly decline among major durable goods categories.
• The average consumer’s ability to spend weakened as real personal income declined by 0.4% and the savings rate fell to 4.5%, signaling potential headwinds for big-ticket purchases, such as vehicles.
• Plans to purchase a vehicle within the next six months remained stable at the highest level since December, despite a decline in overall consumer confidence and ongoing concerns about prices and interest rates.

GDP

The decline in real GDP in the first quarter was revised to a larger 0.5% decline in the third and final estimate, but the decline was mainly an accounting technicality based on surging imports.

• Personal consumption was revised down to 0.5% growth from 1.2%.
• Spending on goods remained at a 0.1% increase, while services were revised down to 0.6% growth from 1.7%.
• Gross private investment was revised slightly lower to 23.8% growth.
• Government spending declined 0.6%.
• Real GDP growth year over year was revised down to 2.0% from 2.1%.
• The core personal consumption expenditure (PCE) index was revised up to 3.5% year over year, and the headline PCE price index rose to 3.8%.

Personal Income and Spending

Consumer spending decelerated to a decline in May. Year-over-year measures of inflation, which the Fed follows closely, showed small gains in May. Personal incomes declined in May with declines in Social Security payments, dividends, and farm income, mostly reflecting normalization after big increases in prior months, while employee compensation was stable and strong. The savings rate declined after a big increase in April.

• Consumer spending fell 0.1% in May, following a 0.2% increase in April and missing expectations for a 0.1% gain.
• Real spending, adjusted for inflation, declined 0.3%.
• Personal income dropped 0.4%, missing expectations for a 0.3% increase.
• Employee compensation remained strong, rising 0.4%.
• Government transfer payments fell 2.3%, largely due to normalization in Social Security after a 6.9% spike in April.
• Proprietors’ income declined 2.3%, driven by a 50% drop in farm income.
• Dividend income fell 0.3%, while interest income rose 0.2%.
• Spending on goods declined 0.8%, with durable goods down 1.8% and nondurables down 0.2%.
• Spending on motor vehicles and parts dropped 6.1% after a 1.6% gain in April.
• The savings rate fell to 4.5% from 4.9%.
• The PCE index rose 0.1% month over month and 2.3% year over year.
• Core PCE inflation increased 0.2% month over month and 2.7% year over year.

Home Sales

Existing home sales and pending home sales increased in May, while new home sales declined. Supply is growing.

• Existing home sales rose 0.8% to a seasonally adjusted annual rate (SAAR) of 4.03 million, beating expectations for a decline.
• Inventory rose 6.2% to the highest level since May 2020.
• Months’ supply increased to 4.6, up from 3.8 a year ago, but is still considered tight.
• The median existing home price rose 1.3% year over year to $422,800.
• New-home sales fell 13.7% to a SAAR of 623,000 and were down 6.3% year over year.
• New-home inventory rose 1.4% month over month and 8.1% year over year.
• Meanwhile, new-home supply increased to 9.8 months from 8.3 months in April – an elevated level.
• Pending home sales rose 1.8% in May and were up 1.1% year over year.

Consumer Confidence

Consumer confidence declined in June, as did the daily index from Morning Consult through Friday. However, the monthly reading on sentiment from the University of Michigan showed an increase, with declining expectations for inflation.

• The Conference Board Consumer Confidence Index^® dropped 5.5%, worse than expected.
• Both present and future outlooks declined, with future expectations falling more sharply.
• Confidence was down 4.9% year over year.
• Plans to purchase a vehicle in the next six months remained stable at the highest level since December and slightly higher year over year.
• The University of Michigan’s sentiment index rose 16.3% to 60.7, beating expectations and improving from earlier in the month.
• One-year inflation expectations fell to 5.0% from 6.6%, and five-year expectations dropped to 4.0% from 4.2%.
• Consumers’ views on vehicle buying conditions improved, though concerns about prices and interest rates persisted.
• The daily index of consumer sentiment from Morning Consult declined 3.7% in June but remained up 5.3% year over year.

Jonathan Smoke

Chief Economist

Jonathan Smoke leads Cox Automotive’s economic and industry insights team, which tracks key metrics and trends impacting both the wholesale and retail markets for vehicles informed by the proprietary data from the company’s businesses and platforms. For 28 years, Smoke has focused on translating data and trends into relevant actionable insights for the industries that represent the biggest purchases that consumers make in their lifetimes: real estate and automotive. Smoke joined Cox Automotive in 2017.