Auto Market Weekly Summary

Key Highlights

• The Federal Reserve has eased monetary policy, and rates are likely to slowly drift down over time, but (auto) credit will remain tight until loan performance starts improving.
• In August, the auto sector lagged behind the broader retail market, with sales of motor vehicles and parts declining by 0.1%.
• Despite a challenging retail environment, residential construction trended positively in August, which could boost demand in the auto sector.

Federal Reserve’s Monetary Policy Shift

The Fed pivoted from hawk to dove and initiated the shift from a tight and restrictive monetary policy with a 50 basis points rate cut as they felt risks were more in balance between their mandates for price stability and full employment.

• Bond yields have been lower this month but are slightly higher post-decision.
• We have seen the peak in interest rates, but the pace of decline in what consumers see will vary depending on the type of credit.
• Consumer rates can decline from lower bond yields and narrower spreads.
• The next Fed decision will come on Nov. 6, the day after the election. We will have three more inflation readings and two more employment reports before that meeting, and hopefully, we will know who won the election.
• Their updated September dot plots now suggest 50 BPs more by year end and 1.5 more points by mid-2026. However, do not count on an exact path with policy changes likely impacting economic trends in 2025 or 2026.

August Retail Sales Performance

The initial retail sales report for August showed a slight increase in consumer spending, with the auto sector underperforming the rest of the market.

• Consumer spending increased by 0.1% in August, better than the expected 0.2% decline, and July’s gain was revised up to 1.1%.
• Sales excluding motor vehicles and parts increased by 0.2%.
• Sales of motor vehicles and parts declined by 0.1%, following a revised gain of 4.4% in July.
• Seven of the twelve major categories saw sales declines for the month.
• Retail sales were up 2.1% year over year on a nominal basis, which was down from an upwardly revised 2.9% year-over-year increase in July.
• Adjusted for inflation using the CPI, retail sales were down 0.1% for the month and down 0.4% year over year. Real retail sales have declined on a year-over-year basis for five straight months and for all but one month (March) this year.

Positive Trends in Residential Construction

Residential construction trends in August showed positive growth, with both permits and starts exceeding expectations.

• The seasonally adjusted annualized rate of starts increased by 9.6%, surpassing the expected 6.5% increase.
• Permits rose by 4.9%, higher than the anticipated 1.0% increase, and the July decline was revised smaller.
• Single-family starts increased by 15.8%, while multifamily starts declined by 4.2%.
• Year over year, total starts were up 3.9%, with single-family starts up 5.2% and multifamily starts up 0.6%.
• Single-family permits decreased by 0.5% year over year, while multifamily permits dropped by 16.2%.
• For the month, single-family permits increased by 2.8% and multifamily permits by 9.2%.
• The permitting pace at 1.475 million units was ahead of the 1.356 million starts pace, indicating potential future increases in starts.
• Single-family starts are currently ahead of permits, suggesting a brighter near-term outlook for multifamily construction, which has contracted the most.
• The multifamily permit pace was 508,000 compared to 364,000 for starts, while single-family had 967,000 permits versus 992,000 starts.
• The report suggests that new construction has likely bottomed out with falling bond yields.

Existing Home Sales

Existing home sales declined in August, with inventory and supply levels increasing.

• Existing home sales declined by 2.5% in August, slightly worse than expected.
• The seasonally adjusted annual rate (SAAR) of 3.86 million was down 4.2% from a year ago, the lowest since 2010.
• Sales decreased in every region except the Midwest, which remained unchanged.
• The South experienced the largest decline both for the month and year over year.
• The Northeast saw a monthly decline but remained unchanged year over year, while all other regions declined year over year.
• Inventory increased by 0.7% to 1.35 million units, up 22.7% year over year, the highest since October 2020.
• The months’ supply of homes for sale rose to 4.2, up from 3.3 months last year, the highest since May 2020.
• The median sales price declined to $416,700, which was up 3.1% year over 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.