Smoke on Cars
Auto Market Weekly Summary
Monday November 4, 2019
Article Highlights
- Economy holding but at a lower growth level.
- October’s new-vehicle SAAR came in at 16.6 million, down from last year and September.
- Fed cuts rates.
Economic growth slows: The economy grew at a 1.9% pace in the third quarter. That was stronger than expected but slower than last year or the first two quarters. Consumer spending again drove the economy, but consumer spending is also decelerating. Business investment fell 3.0% after declining 1% in the second quarter. Housing was a growth contributor for the first time in almost two years. The fourth quarter is likely to see similar, sub-2% growth with similar mixed trends.
Fed cuts rates: The Fed cut rates as expected last week by a quarter point and affirmed no additional plans for more cuts without clear evidence of further deterioration in the economy. If the economy is stabilizing and the Fed is standing firm, real market rates should be relatively stable for the next several months. Read more: Fed Rate Cut Unlikely to Help Average Car Buyer
Job creation healthy: The October employment report provided further evidence of stabilization in the economy. Job creation slowed to 128,000 when analysts had expected only 85,000, and the prior two monthly numbers were revised up for a net increase of 95,000 more jobs than originally estimated. With the revisions, the economy has averaged 167,000 jobs created per month, much slower than last year’s 223,000 but enough to keep the unemployment rate about where it is.
Manufacturing loses: Manufacturing was the big loser, as the UAW strike against GM caused motor vehicle and parts production employment to decline by over 40,000. Most of that should be reversed in November. As a result of an increase in labor participation, the headline unemployment rate inched back up to 3.6%. The underemployment rate, which is the broadest measure of unemployment, also moved up a tenth of a point to 7.0%. Average hourly earnings growth y/y remained at 3.0% with an upward revision to September’s earnings level. The 3% pace is lower than the 3.3% pace last year.
Consumer confidence slips: Consumer confidence is becoming a concern as it declined again, albeit modestly in October after a substantial decline in September. Analysts had expected an increase. Views of the present situation improved but forward-looking expectations declined. The percentage of households reporting plans to purchase a vehicle in the next 6 months declined to its lowest level in four years in October.
Home sales improve: Plans to buy a house increased in October but remain lower than last year. Pending home sales, which are new contracts on existing homes, increased 1.5% in September. Pending sales have increased in six of the nine months reported so far this year and are up 6% year-over-year.
New-vehicle sales: The new-vehicle SAAR for October came in at 16.6 million, down from last year’s 17.5 million and September’s 17.2 million. Preliminary data show fleet down 14% year over year, but commercial sales were the lone year-over-year positive contributor with a 17% gain. Year to date, total sales are down almost 2%, but fleet sales remain up by more than 4%.
Looking ahead: This week we’ll have a thorough review of new- and used-vehicle sales and price trends in October as well as data on consumer credit in September and preliminary consumer sentiment readings in November.