Smoke on Cars
Auto Market Weekly Summary
Tuesday July 5, 2022
Article Highlights
- GDP declined slightly worse than previously estimated for the first quarter.
- Consumer spending slowed in May due to inflation.
- Pending home sales surprised to the upside in May.
Real GDP declined in the first quarter slightly worse than previously estimated, as downward revisions to spending reduced growth further. Even so, consumer spending did grow over Q4 2021.
Consumer spending slowed in May. With inflation factored in, real spending declined. Income growth was stable, and the savings rate increased.
Pending home sales surprised to the upside in May. Jobless claims remain low. Consumer sentiment was down again in June as consumers soured on future expectations with inflation hikes and stock market declines.
GDP declined: First quarter real GDP annualized growth was revised down to a decline of 1.6% in the third and final estimate from the prior estimate of a 1.5% decline.
- Personal consumption was revised down to an increase of 1.8% from the original estimate of 3.1%.
- Spending on goods was revised to a decline of 0.3% from an unchanged performance compared to the fourth quarter.
- Spending on services was revised down to a gain of 3.0% from the previously estimated gain of 4.8%.
- Gross private investment was revised up to a gain of 5.0% from the prior estimate of 0.5%.
- The government spending decline was increased to a revised decline of 2.9% from the prior estimate of a 2.7% decline. The downward revision did not cause a change in real GDP growth year to year, which remained at 3.5%.
Spending slowed: Consumer spending growth slowed again in May to nominal growth of just 0.2% from a downwardly revised increase of 0.6% in April. Substantial downward revisions were made to prior months of spending data this year.
Personal income growth was stable at 0.5%. This level of income growth is very strong historically but is not keeping pace with inflation. Employee compensation grew 0.5% in May as government transfer payments declined 0.2%, with unemployment benefit payments continuing to fall.
Spending on durable goods declined 3.2% in May, spending on nondurable goods increased 0.7%, and spending on services increased 0.7%. Spending on motor vehicles and parts declined 7.1% in May following a 3.4% increase in April. The personal savings rate rose to 5.4% from a nearly 13-year low of 5.2% in April.
The savings rate averaged 7.5% in the 12 months leading to the pandemic but averaged 12% in 2021.
The Personal Consumption Expenditure (PCE) Index, the key gauge of inflation that the Fed follows, increased by 0.6% in May, an increase from the 0.2% increase in April but smaller than the 0.7% consensus estimate. Overall price inflation, according to the PCE, was unchanged at 6.3% y/y in May, while the core inflation rate declined to 4.7% from 4.9% in April. Factoring in inflation, real spending declined 0.4% in May.
Home sales up: Pending home sales, which are new contracts signed on existing homes, surprised to the upside with a 0.7% gain in May from April when a decline of 4% had been expected. Despite the gain, pending sales were down 13.6% from a year ago.
Jobless claims fall: Seasonally adjusted initial jobless claims declined by 2,000 to 231,000 for the week ending June 25. Non-seasonally adjusted claims increased by 1,000. Both measures continue to be lower than in 2019 before the pandemic began.
Continuing claims, which represent people who previously filed and remain on traditional unemployment compensation declined by 3,000 week-to-week, bringing the total down to 1.33 million as of the week ending June 18. That level of continuing claims was 435,000 lower than they were prior to the pandemic. Other than the numbers in May, the last time claims were lower was way back in 1969 when the labor force was half as large.
The broadest measure of continuing claims increased by 18,000 to 1.31 million in the latest data, which lags the traditional number and is not seasonally adjusted. That total measure is down 5,000 over the last four weeks and is 789,000 lower than the pre-pandemic level. The jobless claims data continue to show that the labor market remains historically strong.
Confidence declines: Consumer Confidence, according to the Conference Board, declined 4.4% in June when a larger decline had been expected, but the May index was also revised down. Most of the index decline was driven by a 9.9% decline in future expectations as views of the present situation were barely changed, down 0.2% from May.
Plans to purchase a vehicle in the next six months increased but remained down from a year ago. The confidence index has not declined as much as the sentiment index from the University of Michigan, which declined 14.4% in June to a new record low. The Michigan index is much more sensitive to inflationary pressures and stock market volatility as its questions focus on personal financial conditions, whereas the confidence survey focuses more on business conditions.
The Morning Consult index daily index declined 4.5% in June, but it improved slightly in the final week of the month as gas prices also came down slightly.
ICYMI: Watch a replay of the Cox Automotive Mid-Year Review that was held on Tuesday, June 28. Jonathan Smoke and the Industry Insights team reviewed industry performance through the first six months of 2022, ahead of the first-half close.
Jonathan Smoke is chief economist at Cox Automotive.