Auto Market Weekly Summary

The declining trend in new daily COVID-19 cases continued last week but the rate of decline slowed, and consumer sentiment is still declining.

The Delta variant wave peaked in September and caused a slowing in the pace of real growth in the economy. Third-quarter real GDP grew only 2% following a 6.7% increase in the second quarter.

Consumer spending growth slowed in September as incomes declined. The income decline was caused by the end of pandemic unemployment assistance. Income growth from employee compensation accelerated. Inflation in September, according to the Fed’s preferred measure, was at the highest level in 30 years. 

New home sales increased in September but pending home sales declined. New and continuing jobless claims declined again last week to the lowest levels for the pandemic.

Economic growth slows: The first estimate of third-quarter real GDP measured just 2.0% annualized growth, which was a decline from 6.7% annualized growth rate in the second quarter. Personal consumption increased only 1.6% when it had grown 12.0% in the prior quarter. While consumption did see a substantial deceleration in growth, it was stronger than expected. Spending on goods declined 9.2% while spending on services increased 7.9%.

Gross private investment increased 11.7% driven by investment in mining and energy as well as growth in intellectual property, especially software. However, private investment saw declines in residential and nonresidential structures. Government spending increased 0.8% as state and local expenditures saw growth that exceeded declines in federal spending. With the growth in Q3, real GDP was up 4.9% year over year and at a new record level.

Spending growth slowed: Consumer spending growth slowed to 0.6% in September from an increase of 0.8% in August as personal incomes declined 1.0%. The income decline was driven by declines in government transfer payments, which fell 7.2% as unemployment benefits declined a whopping 72% with the end of pandemic assistance. Income from employment compensation accelerated to a gain of 0.7%. Spending on durable goods declined 0.2%, but spending on nondurable goods increased 0.9%, and spending on services increased 0.6%. Spending on motor vehicles and parts declined 1.9% in September following an even larger 4.6% decline in August.

The personal savings rate declined to 7.5%, which is a low for the pandemic and back to the savings rate average of 7.5% in the 12 months leading to the pandemic. The Personal Consumption Expenditure Index, the key gauge of inflation that the Fed follows, increased 0.3% in September, which was a decline from a 0.4% increase in August. Overall price inflation according to the PCE increased to 4.4% year over year in September, which was the highest level since January 1991.

Home sales climb: New home sales, which are based on new contracts signed on newly constructed homes, grew a much better than expected 14% in September, but prior sales were revised down. New home inventory was unchanged from August but up 32.5% year over year.

With the higher pace of sales, new-home supply declined to 5.7 months, which was the lowest level since May. In September, 33% of the new homes sold were on homes not yet started, while 41% were under construction, and 26% were completed, finished units. With the increase, new home sales were down 18% year over year but were up 13% compared to 2019. Pending home sales, which are new contracts signed on existing homes, declined 2.3% in September from August, leaving sales down 8.0% from a year ago.

Jobless claims fall: As of October 16, 2.24 million Americans remained on traditional unemployment benefits, which are limited to at most six months of coverage. That number is the lowest for the pandemic and is now only 528,000 higher than the level of coverage prior to the pandemic. About 11.3 million were on some form of benefits including pandemic unemployment assistance as of September 4, which was when that assistance ended, removing support from 8.5 million people.

As a result, the broadest measure of continuing benefits declined to 2.83 million, which was a new low for the pandemic and only 730,000 higher than the 2.10 million level prior to the pandemic. Initial claims declined last week to 281,000, which was a new low for the pandemic. Weekly claims remain elevated but are slowly declining towards the 212,000 average per week in 2020 in the weeks before the pandemic began.

Consumer confidence mixed: Consumer Confidence, according to the Conference Board, improved 4.1% in October almost offsetting September’s decline. The increase left confidence down 14.2% compared to February 2020. The increase marked the first month of improvement since June.

The underlying measures of the present situation and future expectations both improved. Plans to purchase a vehicle in the next six months increased as well and are now higher than a year ago. Plans to purchase a home also improved to the highest level since February and were also up year over year. The sentiment index from the University of Michigan reported a 1.5% decline in October as current conditions and expectations both declined.

The Morning Consult index daily index also has seen declines in October, as it declined 1.4% in the last week and is down 2.1% so far in October.