Auto Market Weekly Summary

Highlights:

1. The first estimate of second quarter real GDP showed a higher-than-expected acceleration to 2.8% annualized from 1.4% in the first quarter.
2. Consumer spending growth slightly slowed to 0.3% in June from an upwardly revised 0.4% growth in May.
3. New and existing home sales experienced a decline in June, with existing home sales posting their fourth straight monthly decline.

GDP, Personal Income and Spending.

The second quarter saw an encouraging upswing in real GDP growth, rising to 2.8% annualized from 1.4% in the prior quarter. This acceleration came from robust private domestic investment and government spending. On the downside, net exports dragged on growth as import growth outpaced export growth.

• The year-over-year real GDP growth increased to 3.1% from 2.9%
• The inflation indication from GDP price measures showed a decline, with the GDP price index growing at a slower rate of 2.3% from 3.1% in Q1.
• The core price index, a number the Federal Reserve team watches closely, decelerated to 2.9% from 3.7% in the prior quarter.

Consumer Spending and Personal Income

June saw a slight deceleration in consumer spending growth to 0.3% from 0.4% in May. This slowdown was paired with a weaker-than-expected personal income growth rate of 0.2%.

• Unemployment compensation increased by 2.5% month over month.
• Spending on durable goods fell by 0.2% following an upwardly revised gain of 1.5% in May. Spending on nondurable goods increased 0.2% after no change in May.
• The savings rate dipped to 3.4% from 3.5% in May, indicating a potentially stretched consumer base.

Inflation Measures

The Personal Consumption Expenditure Index (PCE), a key inflation gauge followed closely by the Federal Reserve, saw a hike of 0.1% in June, as expected, following no change in May. However, overall price inflation decreased, with the PCE coming down to 2.5% year over year. Factoring in inflation, real spending increased 0.2% in June, which was half the growth expected and followed a downwardly revised 0.4% gain in May.

[Check Smoke on Cars on July 31 for commentary on the outcome of the Fed’s meeting.]

Existing and New Home Sales

June was a weak month for the housing market, with both new and existing home sales numbers declining. Existing home sales fell by 5.4% to a sale rate of 3.89 million from 4.11 million in May, marking the fourth consecutive month of decline.

• Inventory increased by 3.1% to 1.32 million units, 23.4% higher year over year.
• The median sales price increased to $426,900, up 4.1% year over year.
• New home sales also dipped slightly, falling by 0.6% month over month, with an annualized pace of 617,000 sales, a decline of 7.4% year over year.