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Smoke on Cars

Auto Market Weekly Summary

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Article Highlights

  1. Economic growth still gained; consumer spending accelerated.
  2. August job growth surpassed expectations; prior numbers were revised down.
  3. Vehicle buying plans declined from June but were up year-to-year.

Economic growth for the second quarter was revised down, but it still showed a small increase from the first quarter.

Consumer spending growth accelerated, but income growth slowed while inflation ticked up. Pending home sales increased slightly again.

The August employment report was mixed. Job growth in August was stronger than expected, but prior job numbers were revised down, and the unemployment rate increased. Average hourly earnings growth slowed.

Consumer confidence declined in August. Plans to buy a vehicle slipped but remain higher than a year ago.

Economic Growth in Q2 was Revised Down but Still Showed a Small Gain

The second-quarter real GDP increase was revised down to a 2.1% annualized increase from the 2.4% originally estimated.

Personal consumption was revised up to an increase of 1.7% from the original estimate of 1.6%. Growth in spending on goods was unchanged at 0.7%. Spending on services was revised up to a gain of 2.2% from the originally estimated gain of 2.1%. Gross private investment was downwardly revised to an increase of 3.3% from an original estimate of 5.7%.

Real GDP growth year-over-year decreased slightly to 2.5% from 2.6% after the revisions.

Consumer Spending Accelerated More Than Expected in July

Consumer spending accelerated in July and was stronger than expected. June’s nominal spending was revised to a larger 0.6% gain from the original 0.5% estimate.

Personal income growth decelerated to a 0.2% gain and was weaker than the 0.3% expected.

Employee compensation growth decelerated to 0.4% from an upwardly revised 0.6% in June. Government transfer payments declined 0.6% after falling 0.3% in June, as unemployment compensation declined 1.8%. Proprietors’ income increased 0.5%, which was up from an upwardly revised 0.4% in June. Personal income from dividends declined, and interest income growth decelerated.

Spending on durable goods increased by 0.7% in July, while spending on nondurable goods also increased by 0.7%, and spending on services increased by 0.8%. Spending on goods was stable, while spending on services accelerated. Spending on motor vehicles and parts was unchanged following a downwardly revised 0.7% increase in June.

The personal savings rate declined to 3.5%, the lowest level since last October. The Personal Consumption Expenditure Index (PCE), the key gauge of inflation that the Fed follows, increased 0.2% in July, unchanged from June.

Overall price inflation, according to the PCE, increased to 3.3% in July from a year ago and from 3.0% in June. Core inflation rate rose to 4.2% from 4.1%. Factoring in inflation, real spending increased 0.8% in July, accelerating from an upwardly revised 0.6% gain in June. The data indicate that the consumer has not pulled back.

Pending home sales increased 0.9% in July, and June’s increase was revised up. Pending home sales were down 13.8% from a year ago.

August Job Growth Surpassed Expectations; Prior Numbers Lowered

Job growth in August was stronger than expected, but prior job numbers were revised down, and the unemployment rate increased.

August saw 187,000 jobs created when 170,000 had been expected. The prior two monthly numbers were revised down for a net decline of 110,000 fewer jobs than originally estimated. As a result, August’s job growth was an increase from July’s downwardly revised 157,000.

The data continue to signal that the Fed’s efforts to slow the economy and, specifically, the strong labor market is bearing fruit.

Most major employment sectors saw job gains in August, but the gains were limited compared to what we have seen over the last three years. Education and Health Services again had the largest increase. Mining and logging, trade, transportation and utilities, and information had losses. The services sector collectively added 143,000 jobs, up from 141,000 in July. Auto dealers added 1,900 jobs in August, which left employment at dealers down 52,500, or 4% below the February 2020 level. Total payrolls now exceed February 2020 payrolls by 4.05 million or 2.7%.

Unemployment Rate Edges Higher on Rising Labor Force

The headline unemployment rate jumped from 3.5% in July to 3.8%, the highest unemployment level since January 2022. Growth in the labor force drove the higher rate.

The labor force participation rate increased to 62.8%, the highest level since February 2020. Participation is down 0.5 percentage points from then and represents 1.3 million fewer people in the labor force compared to then despite having added 4 million jobs.

The underemployment rate, which is the broadest measure of unemployment, jumped to 7.1% from 6.7% in July and its highest level since February 2022. Monthly average hourly earnings growth slowed to 0.2%. Earnings growth year-over-year also slowed to 4.3%.

Vehicle Buying Plans Slipped but Were Up Year-to-Year

The Conference Board Consumer Confidence Index fell by 6.9% in August, as views of the present situation and future expectations both declined. Consumer confidence was up 2.4% from last year. Plans to purchase a vehicle in the next six months declined modestly but remained up from last year.

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.

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