Auto Market Weekly Summary

The pace of job creation continues to be weaker than last year, but enough jobs are being created to push the unemployment rate lower. However, not all sectors are strong, as manufacturing is now shedding jobs, and manufacturing data suggest that losses will continue. The mix of job creation and losses may be one of the factors behind decelerating earnings growth.

Manufacturing reflects slowing global growth: Several indicators covering manufacturing activity in September point to the toll that slowing global growth and trade uncertainty are taking on manufacturing in the U.S. The Institute for Supply Management’s Manufacturing Index fell into negative territory in August and declined further in September. The last time this manufacturing index was lower was in 2009 during the Great Recession.

Unemployment falls to 50-year low: The biggest news in the employment report was that the headline unemployment rate fell to 3.5%, which was last seen in December 1969. The underemployment rate, which is the broadest measure of unemployment, fell to 6.9%, which was its lowest level since December 2000. The labor force participation rate was unchanged in September, but the employment-population ratio increased to a high for this economic expansion. Average hourly earnings growth y/y slowed to 2.9%, which was the lowest level in 15 months. The collective data suggest inflation risk remains contained despite relatively healthy job growth and unemployment at a 50-year low.

September new-vehicle sales: New-vehicle sales declined 11% year over year in September with 2 less selling days and without the crucial Labor Day weekend falling in the month. Interestingly, August was up 11% year over year because of the calendar shift. The seasonally adjusted annual rate (SAAR) for September came in at 17.2 million, down slightly from last year’s 17.3 but up from August’s 17.0. Total new-vehicle sales are now down 1.1% YTD.

Fleet drives new-car market: Fleet continues to be the driver of strength in the new vehicle market, but the fleet story was more mixed in September. With fewer selling days, fleet purchases in total were down 7% compared to last year. The big gainer was the commercial segment, which was up 18% y/y. Fleet sales are up 6% YTD.

High incentives didn’t equal high retail sales: Even with the highest average incentive in 21 months, retail sales were down 12% year over year leading to a retail SAAR of 14.6 million, which was down from 14.8 million last year and the weakest retail SAAR in 3 months. Retail sales are down 2.5% YTD. Franchises also saw CPO sales decline 4% year over year.

Average incentive spend came in at $3,979, up 5% year over year and up 0.4% month over month. September saw the highest monthly incentive average since December 2017.

Looking ahead: The Manheim Used Vehicle Value Index will be published at 11 a.m. EDT today, October 7, and explained in a quarterly call. The impact of the UAW strike against GM would not have impacted the jobs data yet based on when the employment numbers were collected, but we continue watching that situation, particularly how inventory levels are being affected.