- No sign of recession in July employment numbers, instead accelerated job growth.
- New-vehicle sales in July were slightly better than June but remain low.
- Used-vehicle sales in July declined.
The July employment report marked a milestone in the pandemic recovery, indicating no sign of a recession.
Job growth in July accelerated to 528,000 jobs created. Unemployment fell to 3.5%, the same as it was in February 2020, though the number of jobs on payrolls is now higher than it was in February 2020. Labor force participation declined slightly, and growth in average hourly earnings year-over-year was steady. Jobless claims have increased in recent weeks but remain exceptionally low.
New-vehicle sales were up slightly in July from June but remain low at a 13.3 million seasonally adjusted rate of sales (SAAR). Tight supply, record prices, and historically low incentives continue to limit sales.
Used-vehicle sales declined in July from June. Used supply is a bit higher than normal in retail and wholesale. As a result, prices in July declined more than normal depreciation trends for the time of year.
Robust job picture: Job growth accelerated in July and was far stronger than expected with 528,000 jobs created. The prior two monthly numbers were revised for a net increase of 28,000 more jobs than originally estimated.
All major private sectors saw gains in jobs with Education and Health Services and Leisure and Hospitality seeing the largest hikes. Total payrolls have now recovered all jobs lost during the pandemic and are now up by 32,000 from February 2020. Auto dealers, however, shed 1,300 jobs, leaving employment down 79,100, or 6%, below the February 2020 level.
Unemployment rate drops: The headline unemployment rate declined to 3.5% in July and is back to the pandemic low in February 2020.
The labor force participation rate declined to 62.1% from 62.2% in June. Participation is down 1.3 percentage points from February 2020 and represents 3.4 million fewer people in the labor force compared to February 2020.
The underemployment rate, which is the broadest measure of unemployment, was steady at 6.7%. 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 accelerated to 0.5%. Earnings growth year-over-year was steady from an upwardly revised 5.2% in June.
Most measures of jobless claims increased in July. However, all measures remain very low, and all measures of continuing claims remain well below what they were before the pandemic.
New-vehicle sales weak: June total new-light-vehicle sales were down 11.9% year over year, with one less selling day compared to July 2021. By volume, July new-vehicle sales were up 0.1% from June. The July SAAR was 13.3 million, a 9% decline from last year’s 14.7 million but up 2.6% from June’s 13.0 million.
Tight supply and slight improvement in production have limited the potential for new vehicle sales to grow and, up until now, have driven prices higher and incentives lower, which has limited demand. However, since supply is not growing, enough demand exists to absorb what has been produced and delivered.
Combined sales into large rental, commercial and government fleets rose almost 10% in July from a year ago. Sales into rental were down 7% from a year ago. Sales into commercial fleets were up 19%, and sales into government fleets climbed 31%.
Including an estimate for fleet deliveries into dealer and manufacturer channels, the remaining retail sales were estimated to be down 13.3%, leading to an estimated retail SAAR of 11.7 million, up 0.3 million from last month, or 2.9%, and down 8.5% from last July’s 12.8 million pace. The fleet share declined in July to 12.4% from 12.5% in June and was down from last July’s 12.8%.
Incentive spending low: Incentive spending by manufacturers increased to an average of $1,145 in July, up 5.5% from June but down 54.9% from a year ago. The average transaction price exceeded the average MSRP for the fourteenth month in a row. The average price at $48,244 was a new record and was up 11.9% from a year ago.
Used-vehicle sales drop: We estimate that used retail sales declined 13% in July from June, and sales were down 16% from a year ago. Compared to 2019, sales were down 29%, which was the worst comparison against 2019 since January. Certified Pre-Owned (CPO) sales were down 17% from a year ago in July as sales volumes were unchanged from June.
Wholesale values dip: Wholesale used-vehicle values, according to the Manheim Index, declined 0.1% in July on a seasonally adjusted basis. The decline left the Index at 219.6, which was up 12.5% from a year ago. The non-adjusted price change in July was a decline of 3.2% compared to June, leaving the unadjusted average price up 10.2% from a year ago.
In July, the Manheim Market Report (MMR) values saw larger-than-normal declines that decelerated as the month progressed. Over the last four weeks, the Three-Year-Old Index decreased a net 2.7%. All major market segments saw seasonally adjusted prices that were higher year over year in July. Compared to June, most major segments’ performance was down with only compact and midsize cars up by 0.9% and 0.5%, respectively.
Jonathan Smoke is chief economist at Cox Automotive.