Auto Market Weekly Summary

Highlights:

• The Federal Reserve (Fed) is expected to make its first rate cut of the current cycle in September.
• The Bureau of Labor Statistics (BLS) has revised job data, revealing that almost 818,000 fewer jobs were created in the 12 months up to March 2024 than previously reported.
• The labor market is weakening, with increasing jobless claims and extended durations, while home sales are rising.

Fed’s Rate Cut Anticipation

Last week was a big week for gathering further insights into the Fed’s likely course of action in its next decision on monetary policy on Sept. 18. The notes from the July meeting were released, which indicated that the committee had already been leaning towards easing at the next meeting, “data permitting.” The data have indeed paved the way for a cut, as labor market data indicate softening while inflation data indicate further progress on inflation.

However, there remains some more “hawkish” worry that inflation could resume as the notes also indicated that “…inflation pressures might persist for some time, as … the economy had considerable momentum, and that, even with some easing of the demand for labor, the labor market remained strong.” The balance of the notes combined with insights from macro data released since the July meeting point to a cut in September, but likely only 25 basis points (BPs) and not 50 BPs or more that some are projecting. Two more inflation readings and one more employment report will be released before that meeting.

Federal Reserve Chair Powell admitted that “…the time has come for policy to adjust” in his speech at the Fed’s annual meeting at Jackson Hole, Wyoming, Friday. He said, “The upside risks to inflation have diminished. And the downside risks to employment have increased.”

BLS’s Historic Job Data Revision

The previously estimated strength of the labor market looks less so with revisions to historical data. The Bureau of Labor Statistics released their annual estimated benchmark revisions, which indicated that job creation in the 12 months ending in March this year has been overstated by 818,000 or approximately 0.5% of total jobs.

• The specific impact on each month will not be known until the full monthly data series is revised next March.
• If the downward revision impacted each month similarly, almost 70,000 jobs would be shaved from each month, resulting in further proof that the labor market has been slowing rapidly since the Fed pushed rates into restrictive territory.

Increasing Jobless Claims

The labor market has been deteriorating this year, with claims increasing and lasting longer, but the level of stress remains relatively limited.

• Seasonally adjusted initial jobless claims rose by 4,000 to 232,000 for the week ending Aug. 17. Non-seasonally adjusted initial claims declined by 9,300 and were 53,600 lower than they were before the pandemic.
• Continuing claims, which represent people who previously filed and remain on traditional unemployment compensation, increased by 4,000 to 1.86 million as of Aug. 10. That level of continuing claims was 103,000 more than it was prior to the pandemic.
• The broadest measure of continuing claims declined by 24,800 to 1.91 million in the latest data, which lags the traditional number and is not seasonally adjusted. That total measure is down 63,000 over the last four weeks and is 195,000 lower than the pre-pandemic level.

Upturn in Home Sales

On the brighter side, both existing and new home sales have seen an increase in July. Total home sales were up 2.6% for the month but were down 1.3% year over year.

• Existing home sales rose by 1.3%, and new home sales took an impressive leap with a 10.6% month-over-month and a 5.6% year-over-year increase. The data indicates a healthier demand for housing, possibly driven by lower mortgage rates.
• The existing home sales seasonally adjusted annual rate (SAAR) of 3.95 million was down 2.5% from a year ago. Sales were up for the month in every region but the Midwest, which was unchanged. The Northeast was up the most for the month and year over year. The West was also up for the year, while the South and Midwest were down year over year.
• Existing home inventory increased by 0.8% to 1.33 million units, which was up 19.8% year over year and at the highest level since October 2020. The months’ supply of homes for sale declined to 4.0, which is very tight but up from 3.3 months last year. Last month’s supply level had been the highest since July 2020.
• The median sales price of an existing home declined to $422,600, which was up 4.2% year over year.
• New home sales jumped in July as mortgage rates declined. New home sales at an annualized pace of 739,000 were up 10.6% month over month and up 5.6% year over year. Sales increased for the month and year over year in every region.
• New home inventory declined 1.1% month over month but was up 8.2% year over year. New-home supply declined to 7.5 months, which was the lowest level this year. This level of supply is closer to normal and the lowest since July last year.