- Auto loan delinquencies are still low but rise.
- Consumer borrowing slows on less auto borrowing.
- Jobless claims reach record lows for the pandemic.
New daily COVID-19 cases declined last week, but the Labor Day holiday caused at least some of the decline. Jobless claims continued to decline to new lows for the pandemic, and consumer sentiment edged out a small gain for the week thus far.
Used retail sales were stable in August compared to July and remain favorable compared to 2019. Wholesale prices increased in August, ending two months of decline as inventory problems persist in the new market.
Consumer credit growth slowed in July as consumers dialed back spending growth.
Auto loan performance deteriorated modestly in August, and the severe delinquency rate is starting to normalize. Auto loan defaults remain very low but increased in August. Despite the modest deterioration in loan performance in August, auto loan credit access improved slightly.
Used-vehicle sales down: We initially estimate that used-vehicle sales were down 12% from a year ago in August, which was against the second strongest month for used sales during the reopening phase of the pandemic last year. Compared to 2019, total used vehicle sales were down 7.8%.
The August used SAAR was 36.7 million, which was down from 41.6 million last year and unchanged from July. The August used retail SAAR estimate was 21.5 million, down 8.6% from 22.0 million last year unchanged from July. The August 2019 retail SAAR was 20.9 million, so the used retail market is holding up well.
Certified pre-owned (CPO) sales declined 7% in August from a year ago and were down 10% from July. CPO sales are up 12% year-to-date compared to the same period last year, and sales for the month were down 15% compared to 2019.
Manheim Index dips: The Manheim Used Vehicle Value Index declined 0.4% from July to August, leaving the index up 18.8% year over year. The seasonal adjustment caused the monthly decline as the non-adjusted average price increased 1.4% in August, leaving prices up 19.9% year over year.
In recent years, August has seen large vehicle value increases, which is why the seasonal adjustment is producing the lower value when the market is seeing real prices rise. On a month-over-month basis, the compact car and pickup segments saw seasonally adjusted declines, while the remaining segments saw modest growth.
Consumer borrowing slowing: The Federal Reserve reported that Consumer Credit excluding housing-related debt grew by $17.0 billion in July, which was a substantial slowing from the credit expansion pace in June. Revolving credit (credit card balances) increased by $5.56 billion, which was down from $18.15 in June. Non-revolving debt (auto loans and student loans) increased by $11.45 billion, which was the smallest monthly increase since January and represented a substantial slowdown from $19.71 billion in June.
Auto loan delinquencies rise: Auto loan performance deteriorated in August as declining unemployment benefits and loan accommodations led to increasing severe delinquencies. Equifax estimates that 1.4% of auto loans were in accommodation as of the end of July, which was down from 1.5% four weeks earlier.
Relative to the level of accommodation pre-pandemic, approximately 519,000 auto loans did not have payments due in August and had frozen statuses, which prevented them from deteriorating. Even with those loans frozen, delinquencies of 60 days or more increased in August for the third month in a row but were down 1.8% from a year ago. In August, 1.20% of auto loans were severely delinquent, which was an increase from 1.15% in July and the highest severe delinquency rate in five months. Compared to a year ago, the severe delinquency rate was 1 basis point lower.
In August, 4.53% of subprime loans were severely delinquent, which was an increase from 4.36% in July and the highest severe delinquency rate in five months. Compared to a year ago, the subprime severe delinquency rate was 18 basis points higher. Loan defaults increased in August and were up 1.9% from a year ago.
Loan access expands: Auto loan credit access expanded slightly in August. Our Dealertrack Credit Availability Index measured auto credit as slightly tighter in August compared to February 2020 before the pandemic began, but auto credit was looser than a year ago for all types of vehicle loans
Consumer sentiment slightly improves: The daily measure of consumer sentiment from Morning Consult has seen modest increases in four of the last seven days ended last Friday, leaving the index up 0.4% over the last seven days up 0.1% so far in September.
Jobless claims fall: Both initial jobless claims and continued claims declined in the last week of reported data to record new lows for the pandemic. Traditional continuing claims are down to 2.783 million as of August 28, but they remain elevated having averaged 1.730 million in the weeks of 2020 before the pandemic began.
Pandemic assistance ended earlier this week but will continue to be reflected in the new lagged data being reported for another two weeks. As of August 21, 11.9 million Americans remain on some form of unemployment benefits, and that total declined by 256,000 from the prior week. As of August 21, 8.90 million Americans were covered by pandemic assistance. Initial claims for the week ending September 4 declined to 310,000. Initial claims averaged 212,000 in the weeks of 2020 leading up to the pandemic.