Auto Market Weekly Summary

After declining in the first week of September, the trend in new daily COVID-19 cases resumed increasing last week. Consumer sentiment declined again, and sentiment is now down slightly in September following declines in July and August. Initial jobless claims increased last week from what had been a low for the pandemic.

Inflation trends decelerated in August. Retail sales increased in August, but spending remained off the higher levels of spending this spring. Sales of autos and parts saw the biggest declines in August.

Wholesale used vehicle values increased by 3.6% in the first 15 days of September as further inventory challenges in the new market combined with demand for replacement vehicles from damage caused by Hurricane Ida are causing strengthening demand for wholesale vehicles.

Inflation decelerates: Headline and core inflation both decelerated in August, as many transitory factors that were causing inflation earlier in the year became deflationary. The headline aggregated measure increased 0.3% on a seasonally adjusted basis from 0.5% in July. The core CPI, which excludes Food and Energy, increased 0.1% from 0.3% in July.

Categories with the largest August increases in prices were gasoline (+2.8%), sporting goods (+2.3%), motor vehicle parts (+1.7%), moving, storage and freight expense (+1.7%), motor vehicle repair (1.3%), and new cars and trucks (+1.2%). Rent growth increased but remains relatively contained in the CPI data.

The biggest category decliners in August were airline fares (-9.1%), car and truck rental (-8.5%), lodging away from home (-2.9%), motor vehicle insurance (-2.8%), used cars and trucks (-1.5%), and educational books and supplies (-1.1%). On a year-over-year basis, the core CPI declined to 4.0% from 4.3% in July. The overall CPI also declined to 5.3% from 5.4% in July, which had been the highest y/y increase since 2008.

The categories with the largest year-over-year increases were car rental (+53%), gasoline (+43%), used cars (+32%), and lodging (+17%). The base effects from lower prices last year are starting to diminish and some of the categories with reopening surges, like in used cars, saw declines. The trend with used car prices will likely be reversed in September.

Retail sales surprisingly strong: Retail sales were stronger than expected in August, but July’s decline was revised to be larger than initially estimated and the sales level in August was lower than in June and the peak level of sales during the spring in April. The July decline was revised to a 1.8% decline from an initially estimated decline of 1.1%. The initial August estimate showed a seasonally adjusted total increase of 0.7%.

Auto sales again underperformed against other goods as sales excluding motor vehicles and parts increased 1.8% in August while sales of motor vehicles and parts were down 3.6%. The only other retail decliners in August were electronics and appliances (-3.1%) and sporting goods (-2.7%).

The biggest category gainers in August were non-store (e-commerce) retailers (+5.3%) and furniture and home furnishings (+3.7%). Spending at foodservice and drinking places held steady with July despite rising COVID-19 cases. Retail sales were up 15% from a year ago in August against a time when most areas were reopened in 2020. Compared to August 2020, no major category for retail sales was down.

Used-vehicle prices up: The pace of used-vehicle retail sales in September has held up similarly to August, and further inventory challenges in new as well as demand for replacement vehicles from damage caused by Hurricane Ida are causing strengthening demand for wholesale vehicles. As a result, the Manheim Used Vehicle Value Index increased 3.6% in the first 15 days of September. All model ages are seeing price gains, and non-luxury vehicles are increasing at the fastest rate. After six weeks of increases in MMR values, retail prices increased last week as well.

Consumer sentiment mixed: The initial September reading on Consumer Sentiment from the University of Michigan increased a modest 1% to 71.0 from 70.3 in August. The index remains near the pandemic low recorded last month, which was also the lowest in a decade. Consumers’ view of current conditions declined while future expectations improved. Consumers saw buying conditions for vehicles decline again to the lowest level registered by the survey back to 1978. The daily measure of consumer sentiment from Morning Consult has declined thus far in September. The index as of last Friday was down 0.4% over the last seven days, leaving it down 0.3% so far in September

Jobless claims rise: As of September 4, 2.665 million Americas remained on traditional unemployment benefits, which are limited to at most six months of coverage, but 12.1 million were on some form of unemployment benefit at the end of August including pandemic unemployment assistance, which provided coverage beyond six months. That broadest measure of benefits has increased by 281,000 over the last four weeks even as pandemic assistance was slated to end by Sept. 4. Initial claims increased last week to 332,000 from an upwardly revised 312,000 the prior week, which was a low for the pandemic. Weekly initial claims remain elevated as they averaged 216,000 in the first 11 weeks of 2020 leading up to the pandemic. Continuing claims were 1.770 million before the pandemic began.

An Auto Market Report video will be published in Smoke on Cars on Tuesday, September 28. Register for the Cox Automotive Q3 Forecast Call scheduled for Thursday, September 30 at 10 a.m. EDT.