- New cases of COVID-19 cause jobless claims to rise
- New-vehicle sales lose momentum
- Auto loan performance could be worrisome
The growth in daily new COVID-19 cases in the U.S. is leveling off, but the rise in cases this summer and increased restrictions on activity as a result has diminished economic activity resulting in an increase in people filing for unemployment benefits.
Jobless claims rise: Continuing unemployment declined in the latest data, but initial claims increased for the first time since March. More than 16 million Americans are unemployed.
Without additional action from Congress, which seems likely but not certain, the enhanced unemployment compensation of $600 per week expired after the last round of payments were made last weekend. If we don’t see much lower unemployment and/or an extension of benefits, we’ll see a substantial number of households experiencing financial distress beginning in August.
Housing strengthens: One bright spot in the economy is the housing market, which is recovering strongly as demand is strengthened by historically low mortgage rates. Inventory is a problem in the existing home market.
Vehicle supply short: As in housing, inventory is a problem in the auto industry. Strong demand has reduced both new vehicle supply and used vehicle supply, and has also led to record prices. We’re no longer seeing gains in the vehicle sales recovery.
Consumer sentiment slips: Consumer sentiment continues to drift down with higher cases of COVID-19 and rising jobless claims. Now more economic uncertainty lingers with the expiration of many of the CARES act provisions. The index of consumer sentiment from Morning Consult has been declining since COVID-19 cases began to surge in mid-June and had a daily reading that was the lowest since May 25 last week.
Auto loans worrisome: Auto loan performance looks great at the moment, but accommodations make stats like delinquency rates look better than they really are. Auto loan delinquency rates fell again in June, but much of the improvement is likely a result of loan accommodations, which were reported by Equifax to be 7.8% of auto loans by the end of June.
Accommodation would prevent loans from falling into severe delinquency status or end because of bankruptcy or default. Our analysis of Equifax auto loan performance data indicates that 1.32% of auto loans were severely delinquent in June, while 4.70% of subprime loans were severely delinquent. The overall delinquency rate was lower than a year ago, but the subprime rate was higher than last June by 12 basis points.