Auto Market Weekly Summary

The number of daily new COVID-19 cases is increasing again, due to lax behavior over the Labor Day holiday weekend, much like we saw after Memorial Day. Momentum in several parts of the economy appears to be stalling.

Retail sales barely rise: Retail sales barely increased in aggregate in August, and the gain was assisted by changes to the normal seasonal adjustment. Without that change, the Census Bureau reported that the monthly numbers would have seen no gain. Sales increased 0.6% from July.

We continue to see some categories up substantially year over year, while others are down significantly. Auto sales underperformed. Categories with the largest year-over-year gains in August were e-commerce, building materials, groceries, sporting goods, auto parts, and health and personal care. Categories with the largest year-over-year declines in August were clothing, department stores and restaurants.

Used-vehicle prices cool: Used-vehicle prices are no longer rising in the wholesale market following slower sales in August. Used-vehicle sales are slowing modestly. As a result, supply has increased in recent weeks, and vehicle values are no longer appreciating.

The Manheim Index decreased 0.9% comparing the first 15 days of September to the month of August. This brought the Index to 162.3, which is up 16% from September 2019. Our leading indicators of price movement suggest that normal price depreciation will continue in the days ahead.

Job recovery, losses: The jobs recovery continues, but each week brings more job losses. Initial jobless claims were 860,000 for the week ending Sept. 12, a decline of 33,000 from the prior week. Continuing claims, which represent people who previously filed and were approved and remain on traditional unemployment compensation, declined to 12.6 million from 13.5 million. The new number of people on traditional unemployment benefits represents 8.3% of February’s job total. With declining continuing claims, the key concern in the jobless data is the persistent high level of initial claims, indicating high levels of new job losses.

Consumer sentiment improves: Consumer sentiment continues to slowly improve but remains off by about 20%, which is much like the overall economy. The initial August reading on Consumer Sentiment from the University of Michigan increased though remains down from February. The underlying gauges of future expectations and current conditions both improved. Consumers saw buying conditions for vehicles less attractive driven by more negative views of vehicle prices. The daily measure of consumer sentiment from Morning Consult also has shown improvement for seven weeks, with sentiment now down by 19.6% compared with the end of February

Construction declines: Residential construction declined slightly in August as storms, primarily related to two hurricanes impacting activity in the southern U.S. The seasonally adjusted annualized rate of housing starts declined 5.1%, while permits declined 0.9%. Still, housing starts are up 2.8% from last August.

Permits are unchanged from a year ago. Permits lead starts, and the permitting pace at 1.470 million units exceeds the 1.416 million starts pace. This implies that starts will likely increase further, as starts are particularly susceptible to weather conditions.

Low mortgage rates and increased demand for single family homes and second homes have been helping new construction grow for several months, but the latest data are a reminder that weather and other supply constraints (lumber, land and labor in particular) will limit the growth that can occur. If new construction is limited, demand for housing is likely to continue to drive home prices higher at an above normal rate of increase.