Auto Market Weekly Summary

Hiring stalls out, inflation ticks up, but real consumer spending remains positive

The first estimate of second-quarter real GDP growth showed a sharp rebound as seasonally adjusted annualized growth was 3.0% following a decline of 0.5% in the prior quarter. The increase was driven by a collapse in imports so was again more of an accounting technicality as opposed to a true acceleration in what really drives the economy; however, the data show that consumer spending improved. Details included:

• Personal consumption accelerated to growth of 1.4% from 0.5%. 
• Spending on goods accelerated to 2.2% growth from 0.1% growth in the prior quarter, while spending on services accelerated to growth of 1.1% from 0.6%. 
• The decline in imports led to a decrease in inventories, which drove a large 15.6% decrease in private domestic investment. 
• Government spending increased 0.4% following a decline of 0.6% previously. 
• Real GDP growth year over year was steady at 2.0%.
• The GDP price index grew 2.0%, down from 3.8% in Q1. The core price index decelerated to 2.5% from 3.5% in the prior quarter. 

In the monthly personal income and spending data for June, spending held up as income growth remained relatively strong. Details included: 

Personal spending increased 0.3% in June following an upwardly revised no change in May.

• Spending on goods increased 0.5% following a decline of 0.7% while spending on services saw steady growth of 0.3%.
• Durable goods spending was unchanged following a decline of 1.7% previously.
• Following a 0.2% decline in May, spending on nondurable goods increased 0.7%.
• Spending on motor vehicles and parts decreased 0.8% following a 5.7% decline.

Personal income increased 0.3% when a 0.2% gain had been expected following a 0.4% decline in May. 

• Employee compensation growth slowed to 0.2% from 0.4% previously.
• Government transfer payments increased 1.0% as Social Security payments bounced back following a 2.1% decline in May and unemployment compensation accelerated.
• Proprietors’ income grew 0.2% following a 2.6% decline in farm income that had followed large gains in March and April.
• Personal dividend income growth declined 0.2%, and interest income growth was steady at 0.2%. 
• The savings rate was steady at 4.5%.

The personal consumption expenditure (PCE) index, the key gauge of inflation that the Fed follows, increased 0.3% as expected. 

• Overall price inflation, according to PCE, increased to 2.6% year over year, which was higher than the 2.5% expected. 
• The core inflation rate was steady at 2.8% with an increase of 0.3% for the month. 
• Factoring in inflation, real spending decreased 0.1% in June as expected.

The employment report for July reflected weak job growth and rising unemployment as the economy adjusts to tariffs and slower immigration. Only 73,000 jobs were created when 104,000 were expected, and the prior two months were revised down for a net decrease of 258,000 fewer jobs than originally estimated.

• The private sector added 83,000 jobs, while government shed 10,000.
• The Federal government lost 12,000 jobs, adding to the 72,000 total previously lost since January.
• Manufacturing shed 11,000 jobs following a decline of 15,000 in June.
• Services produced 96,000 new jobs, which was 80,000 more than June.
• Education and health services again had the largest gain in the private sector, with 79,000 jobs created, which was up from 52,000 created in June.
• Professional and business services saw a decline of 14,000 jobs, and information also saw a decline of 2,000.
• Employment at auto dealers increased by 400 jobs, leaving employment down 14,300 or 1.1% below the February 2020 level.

Total payrolls now exceed February 2020 payrolls by 7.2 million or 4.8%. The three-month moving average of new jobs decreased to just 35,000, which is the lowest level since the spring and summer of 2020, and is too weak to sustain a level of unemployment consistent with full employment.

The headline unemployment rate increased to 4.2% from 4.1%.

• The labor force participation rate decreased to 62.2% from 62.3%. Participation is down 1.1 percentage points from before the pandemic and represents 3 million fewer people in the labor force compared to then, despite having added 7.2 million jobs.
• The under-employment rate increased from 7.7% to 7.9%, which is 0.9 percentage points above where it was in February 2020.

Monthly average hourly earnings growth was steady at 0.3% from 0.4%, with growth year over year improving to 3.9% from 3.8%.

Bottom Line: The July report did not indicate major problems with layoffs, but hiring has slowed to a crawl, and participation is down. Job growth is likely to remain depressed as businesses see weak sales growth and declining margins from the impact of tariffs and costs that are not being passed along to consumers. Adoption of artificial intelligence may also be a factor in slower hiring.

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.