- October inflation reaches the highest year-over-year level since October 1990.
- Auto loan originations slowed modestly in Q3 from the record Q2 pace.
- Auto loan performance is starting to normalize from historically low delinquencies and defaults.
Inflation rose in October to the highest year-over-year level since October 1990. While the consumer credit expansion pace accelerated in September, auto loan originations slowed modestly in the third quarter from the record pace of originations in the second quarter. Auto loan performance deteriorated again in October and is starting to normalize from historically low delinquencies and defaults. The Dealertrack Credit Availability Index measured auto credit for all loans as looser in October compared to February 2020. Consumer sentiment in November declined in the initial reading for both current and future expectations. The number of unemployment claims continues to edge closer to the pre-pandemic level.
Headline inflation accelerates in October. The headline aggregated measure of inflation increased 0.9% on a seasonally adjusted basis from 0.4% in September. The core CPI, which excludes Food and Energy, increased 0.6% from 0.2% in September. Some categories with the largest October increases in prices include fuel oil (+12.3%), gas utility (+6.6%), gasoline (+6.1%), car and truck rental (+3.1%), miscellaneous personal goods (+2.7%), used cars and trucks (+2.5%), motor vehicle maintenance and repair (+1.5%), and new cars and trucks (+1.4%). On a year-over-year basis, the core CPI accelerated to 4.6% from 4.0% in September, which was the highest year-over-year increase since August 1991. The overall CPI accelerated to 6.2% from 5.4% in September. The year-over-year level of inflation was highest since October 1990. The categories with the largest year-over-year increases in October were fuel oil (+59%), gasoline (+50%), car rental (+39%), used cars (+26%), and lodging (+22%).
Consumer credit expansion pace accelerates. The Federal Reserve reported that consumer credit excluding housing-related debt grew by $29.9 billion in September, which was an acceleration of the credit expansion pace and the largest monthly increase since June. Revolving credit (credit card balances) increased by $9.84 billion, which was up from $2.79 in August and the biggest monthly increase since June. Non-revolving debt (auto loans and student loans) increased by $20.08 billion, which was the largest monthly increase since May. The New York Fed reported that auto loan originations totaled $198.8 billion in the third quarter, which was a modest 1.5% slowing from the record pace of originations in the second quarter.
Auto loan performance deteriorated again in October. With government support fading, credit performance is starting to normalize from historically low delinquencies and defaults. Equifax estimates that 1.2% of auto loans were in accommodation as of the end of September, which was unchanged from August. Relative to the level of accommodation pre-pandemic, approximately 370,000 incremental auto loans did not have payments due in October and had frozen statuses, which prevented them from deteriorating. Even with those loans frozen, 60-day+ delinquencies increased in October for the fifth month in a row and were up 4.6% year-over-year. In October, 1.33% of auto loans were severely delinquent, which was an increase from 1.28% in September and the highest severe delinquency rate in 7 months. Compared to a year ago, the severe delinquency rate was 5 basis points higher. In October, 5.05% of subprime loans were severely delinquent, which was an increase from 4.83% in September and the highest severe delinquency rate in 8 months. Compared to a year ago, the subprime severe delinquency rate was 41 basis points higher. Loan defaults increased 6.7% in October from September but were down 0.3% y/y. Auto credit access expanded in October. Our Dealertrack Credit Availability Index measured auto credit as looser in October compared to February 2020 before the pandemic began for all types of loans and for all types of lenders.
Consumer Sentiment declines in November. The initial November reading on Consumer Sentiment from the University of Michigan declined 6.8% to 66.8 from 71.7 in October. Consumers’ views of current conditions and future expectations both declined. 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 1.5% gain thus far in October. The more recent improvement in the Morning Consult index suggests that the Michigan measure could improve with the final reading.
Unemployment claims edge toward pre-pandemic level. As of October 30, 2.160 million remain on traditional unemployment benefits, which are limited to at most 6 months of coverage. The broadest measure of continuing claims, which had included pandemic unemployment assistance before it ended in September, declined by 108,000 to 2.6 million in the latest data and is only 463,000 higher than the 2.10 million level prior to the pandemic beginning. Initial claims declined last week to a pandemic low of 267,000 from an upwardly revised 271,000 the prior week. Weekly initial claims are falling toward the 212,000 weekly average for the first 11 weeks of 2020 leading up to the pandemic.
An Auto Market Report video will be published in Smoke on Cars on Tuesday, November 23.