Auto Market Weekly Summary

New construction trends were mixed in August with starts down, permits up, multifamily weak, but single family more stable. Existing home sales declined again in August when a small increase had been expected.

Jobless claims are declining in September. The labor market is not as strong as it was a year ago, and claims have increased in 2023, but they are declining now by almost every measure, indicating strength, not stress, in the labor market.

The Fed left rate policy unchanged but signaled additional rate hikes could come and that rates will be higher for longer.

Housing Trends in August were Mixed

Residential construction starts declined much more than expected in August, and downward revisions were made to July. However, permits increased and prior numbers were revised slightly higher.

The mixed story extended to the type of home being constructed, as the weakness in residential starts was principally in multifamily. Still, the permitting trend suggests that starts will improve in future months.

The seasonally adjusted annualized rate of starts declined 11.3% when 0.9% was expected, and July’s increase of 3.9% initially reported was revised down to an increase of 2.0%. Permits increased 6.9% when a 0.2% decline had been expected. The decline in starts was in single-family and multifamily, but multifamily declined 26% while single-family declined only 4%.

After the August decline, total starts were down 14.8% from a year ago and were down 6.1% compared to August 2019. Permits were up by 5% compared to 2019 in single-family but down by 4.8% in multifamily. The permit trends reflected stronger potential performance ahead as single-family sales increased by 2% and multifamily increased by 15.8%.

Permits were down 2.7% year-over-year in total, up 7.2% in single family, but down 15.3% in multifamily. Permits lead starts, so the permitting pace at 1.543 million units was the highest level in eleven months and ahead of the 1.283 million starts pace, which indicates that starts will likely increase in future months.

Existing home sales declined again in August when a small increase had been expected. The existing home sales SAAR declined 0.7% to 4.04 million from 4.07 million in July. At the August rate, existing home sales were down 15.3% from a year ago and at the slowest pace since January.

Inventory declined 0.9% to 1,100,000 units, which was down 14.1% from a year ago. Inventory keeps moving quickly, as 72% of the homes sold in August were on the market for less than a month, and the typical time on the market was 20 days, which was unchanged from July but up from 16 days in August last year. The months’ supply of homes for sale was steady at 3.3 and remains less than half of what is considered normal. The median sales price increased to $407,100, which was up 3.9% from a year ago.

The housing market remains very sensitive to mortgage rates, which have been volatile this year but have surged to be close to new 22-year highs in recent days. The existing home market is very constrained by supply and will be as long as rates remain high since existing mortgages are much lower than what’s possible now. The limited existing home market creates opportunities in the new single-family home market when existing homes cannot expand to meet demand needs. Still, high mortgage rates limit just how much demand homebuilders will see.

Jobless Claims are Declining in September

Seasonally adjusted initial jobless claims declined by 20,000 for the week ending September 16. That was 13,000 less than we saw in 2020 before the pandemic began. Non-seasonally adjusted initial claims were unchanged and 70,000 lower than before the pandemic.

Continuing claims, representing people who previously filed and remain on traditional unemployment compensation, declined by 21,000 w/w, moving the total down to 1.66 million as of September 2. That level of continuing claims was 225,000 lower than before the pandemic and the lowest level since January.

The latest data show that the broadest measure of continuing claims declined by 93,000 to 1.68 million, which lags the traditional number and is not seasonally adjusted. That total measure is down 160,000 over the last four weeks and is 424,000 lower than the prepandemic level and the lowest level since June.

The labor market is not as strong as it was a year ago, and claims have increased in 2023, but they are declining now by almost every measure, indicating strength, not stress, in the labor market.

The Federal Reserve Left Rates Alone – For Now

As expected, the Federal Reserve left its short-term rate policy unchanged at their September meeting. However, they made it clear that additional rate hikes could come as they remain “highly attentive to inflation risks.”

The Fed also upwardly revised economic forecasts, and their revised views of GDP and the unemployment rate imply that the Fed no longer expects a recession to occur. Their revised dot plots suggest that rates will remain high for longer. Rate policy is only expected to decline by 50-75 BPs in 2024 and by another 150 BPs across 2025. That would leave rate policy at the end of 2025 at 3.875%, a half point higher than their last forecast and higher than any policy level since 2007. [Read more commentary in the Sept. 20 Smoke on Cars post.]

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.