Smoke on Cars
Auto Market Weekly Summary
Monday August 5, 2019
Article Highlights
- Job growth slows, wages grow but work hours fall.
- The Fed cut rates but that’s not entirely good news.
- New-vehicle sales rise on richer incentives and fleet sales.
Job growth is slowing as the underemployment rate declines to near historic lows, but job creation in July was exactly in line with the average monthly creation this year and what was expected. Wages are growing again, but hours worked are falling, limiting the positive impact for consumers.
Fed cuts rates: The Fed cut rates last week with inflation persistently weak, and risks are mounting that could derail economic growth. [Read my post to learn more.] Now the President has scheduled another round of tariffs with China scheduled to start September 1, and China is expected to retaliate. he market had been dreaming about a trade agreement, so this latest development is undermining market confidence.
The cut by the Fed should help dealers almost immediately by lowering their cost of credit, but consumers might not even see tangible lower rates, especially if economic conditions stabilize. If conditions deteriorate, consumers won’t feel confident to buy. This is a reminder that when the Fed cuts rates, it’s not for good reasons.
Off to an auspicious start, August may augur how this year ends.
New-vehicle sales rise: New-vehicle sales were up in July with one extra day from July a year ago. The highest average incentives we’ve seen in more than a year helped retail vehicle sales. But the theme for July has been the theme all year: fleet. Fleet sales are up 6% year-to-date while retail sales are down 3% year-to-date. Lower interest rates combined with more tempting incentives could improve retail sales, but declining economic conditions and consumer sentiment could limit any upside.
Consumers are confident: Consumer confidence jumped in July for its highest reading of the year as the underlying views of the present situation and expectations for the future both improved. Plans to purchase an auto in the next 6 months did not see a corresponding jump.
Looking ahead: This week we’ll get data on June consumer credit, and we will release July estimates for used vehicle sales and the Manheim Index.