- The employment picture remains a bright spot in the economy.
- New-vehicle sales stay low due to tight supply, high prices and low incentives.
- New-vehicle average transaction price sets record, surpassing $48,000.
The June employment report showed a slowing in job growth, but it exceeded expectations at 372,000 jobs created, which was a historically healthy number of jobs created. The unemployment rate was also unchanged at 3.6%.
Labor force participation declined slightly, and growth in average hourly earnings year over year slowed. The underemployment rate fell to a 52-year low. The strength of the job market casts doubt on the heightened risk of recession in the short term. Jobless claims have increased in recent weeks but remain exceptionally low.
New-vehicle sales were up slightly in June from May but remain extremely low at a 13.0 million SAAR. Tight supply, record prices, and record low incentives continue to limit sales.
Used vehicle sales increased in June from May. Used supply has normalized and prices are declining, reflecting typical depreciation trends.
Strong job market: Job growth slowed in June but was better than expected with 372,000 jobs created. The prior two monthly numbers were revised for a net decline of 74,000 fewer jobs than originally estimated, so the net gain was not as large as the headline increase in June.
All major private sectors saw gains in jobs over May with Education and Health Services and Professional and Business Services seeing the largest gains. Auto dealers had a gain of 1,400 jobs, leaving employment down 75,600, or 6%, below the February 2020 level. Total payrolls are now down by 524,000 from February 2020.
The headline unemployment rate at 3.6% remained unchanged from March, April, and May and remains at a pandemic low and just 0.1 percentage points higher than the rate in February 2020. The labor force participation rate declined to 62.2% from 62.3% in May. Participation is down 1.2 percentage points from February 2020 and represents 3.2 million fewer people in the labor force compared to February 2020.
The underemployment rate, which is the broadest measure of unemployment, declined to 6.7%, from 7.1% in May. That rate is now lower than it was before the pandemic began and is at the lowest level since December 1969. Monthly average hourly earnings growth was steady at 0.3% but earnings growth year-over-year slowed to 5.1% from a year ago.
Jobless claims increased in June across all measures, including initial claims and continuing claims. However, all measures remain very low and at levels well below what they were before the pandemic.
New-vehicle sales weak: June total new-light-vehicle sales were down 13.5% year over year, with one less selling day compared to June 2021. By volume, June new-vehicle sales were up 1.7% from May. The June SAAR was 13.0 million, a 16% decline from last year’s 15.5 million but up 2.3% from May’s 12.7 million.
Combined sales into large rental, commercial, and government fleets were up over 8% in June compared with a year ago. Sales into rental were down 10% from a year ago, while sales into commercial fleets were up 23% and sales into government fleets were up 24%. Including an estimate for fleet deliveries into dealer and manufacturer channels, the remaining retail sales were estimated to be down 15.3%, leading to an estimated retail SAAR of 11.1 million, up 0.2 million from last month, or 1.6%, and down 8.5% from last June’s 12.1-million pace. Due to weakness in retail, fleet share rose in June to 14.5%, up from last June’s 12.7% and last month’s 13.9%.
Tight supply and lack of improvement in production are limiting the growth in new-vehicle sales that would typically happen as the year progresses and are also keeping prices high and incentives low, which depressed demand. Incentive spending by manufacturers fell to an average of $1,083 in June, down 6.9% from May and down 60.3% from a year ago.
The average transaction price exceeded the average manufacturer’s suggested retail price for the thirteenth month in a row, and the average price at $48,043 was a new record and was a record 16.1% greater than the average invoice in June. We estimate that used retail sales increased 5% in June from May, but sales were down 13% from a year ago.
Compared to 2019, sales were down 11%, which was the best comp against 2019 so far this year.
CPO sales were down 14% in June compared with a year ago and declined 1% from May.
Manheim Index slips: Wholesale used vehicle values, according to the Manheim Used Vehicle Value Index, declined 1.3% in June on a seasonally adjusted basis. The decline left the Index at 219.9, which was up 9.7% from a year ago. The non-adjusted price change in June was a decline of 1.8% compared to May, leaving the unadjusted average price up 10.7% from a year ago. Manheim Market Report (MMR) values saw declines that were larger over the last two weeks than the prior two weeks.
Over the last four weeks, the Three-Year-Old Index decreased a net 2.5%. All major market segments saw seasonally adjusted prices that were higher year over year in June except for pickups, which were down 2.5% from a year ago. Compared to May, performance for all major segments was down. Pickups and midsize cars lost more than 2%, followed by luxury cars and vans at 1.8% and 1.6%, respectively.
Jonathan Smoke is chief economist at Cox Automotive.