- Inflation accelerated in September to the highest levels since 2008.
- Auto loan performance deteriorated as the impact of stimulus and loan accommodations dissipates.
- Retail sales rise. Consumer confidence improves slightly.
The trend in new daily COVID-19 cases continued falling last week. Consumer sentiment moved slightly higher for the week, and sentiment is now up slightly in October following declines all summer and in September.
Inflation trends accelerated in September, and retail sales increased in September and were much stronger than had been expected.
Auto loan credit expanded in September even as loan performance deteriorated as credit performance trends normalize from abnormally strong conditions earlier this year as a result of stimulus support and accommodations, both of which are fading.
Initial and continuing jobless claims declined in the latest data to new lows for the pandemic.
Inflation accelerated: Headline inflation accelerated in September. The headline aggregated measure increased 0.4% on a seasonally adjusted basis from 0.3% in August. The core CPI, which excludes Food and Energy, increased 0.2% from 0.1% in August.
Categories with the largest September increases in prices were fuel oil (+3.9%), motor vehicle insurance (+2.1%), household energy (+1.3%), and new cars and trucks (+1.3%). Rent growth accelerated.
The biggest category decliners in September were travel related: airline fares (-6.4%) and car and truck rental (-2.9%). On a year-over-year basis, the core Consumer Price Index (CPI) was unchanged at 4.0%. The overall CPI accelerated to 5.4% from 5.3% in August, which matches the highest increases earlier in the year and highest year over year since 2008. The categories with the largest year-over-year increases were car rental (+43%), gasoline (+42%), used cars (+24%), and lodging (+18%).
Retail sales strengthen: Retail sales were much stronger than expected in September, as the initial estimate showed a seasonally adjusted total increase of 0.7% when a decline of 0.2% was expected. August sales were also revised up.
Auto sales again underperformed against other goods as sales excluding motor vehicles and parts increased 0.8% in September while sales of motor vehicles and parts were up 0.5%. Sporting goods, hobby, book, and music stores (+3.7%) and general merchandise stores (+2%) were the largest gainers. Health and personal care (-1.4%) and furniture, home furnishing, and electronics (-0.2%) were the only retail decliners. Retail sales were up 13.9% y/y in September. Compared with September 2020, no major category for retail sales was down.
Borrowing slowed: The Federal Reserve reported that Consumer Credit, excluding housing-related debt, grew by $14.4 billion in August, which was a further slowing of the credit expansion pace. Revolving credit (credit card balances) increased by $2.98 billion, which was down from $5.81 in July. Non-revolving debt (auto loans and student loans) increased by $11.40 billion, which was the smallest monthly increase since January and represented a slight slowing from $11.46 billion in June.
Auto loan performance deteriorated: Auto loan performance deteriorated in September as the impact of stimulus and loan accommodations dissipates and credit performance is starting to normalize. Equifax estimates that 1.2% of auto loans were in accommodation as of the end of August, which was down from 1.4% at the end of July.
Relative to the level of accommodation pre-pandemic, approximately 370,000 auto loans did not have payments due in September and had frozen statuses, which prevented them from deteriorating. Even with those loans frozen, 60-day+ delinquencies increased in September for the fourth month in a row and were up 1.8% year over year.
In September, 1.28% of auto loans were severely delinquent, which was an increase from 1.20% in August and the highest severe delinquency rate in five months. Compared to a year ago, the severe delinquency rate was 2 basis points higher.
In September, 4.83% of subprime loans were severely delinquent, which was an increase from 4.53% in August and the highest severe delinquency rate in six months. Compared to a year ago, the subprime severe delinquency rate was 29 basis points higher. Loan defaults increased 1.6% in September but were down 7.6% year over year. Auto credit access expanded in September.
Our Dealertrack Credit Availability Index measured auto credit as slightly tighter in September compared to February 2020 before the pandemic began, but auto credit was looser from a year ago for all types of vehicle loans.
Consumer sentiment slightly improves: 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’ views 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 improved this week leaving a slight 0.2% gain thus far in October.
Jobless claims decline: As of October 2, 2.593 million Americans remain on traditional unemployment benefits, which are limited to at most six months of coverage. The broadest measure of continuing claims, which had included pandemic unemployment assistance, declined by 523,000 to 3.6 million in the latest data.
An Auto Market Report video will be published in Smoke on Cars on Tuesday, October 26.