Smoke on Cars
Auto Market Weekly Summary
Monday November 16, 2020
- COVID-19 cases are setting new records; governments are imposing restrictions.
- Consumer sentiment declined due to COVID-19 and the elections.
- Job recovery is threatened by COVID-19.
Daily new COVID-19 cases continue an upward trend that is producing records. The U.S. saw more than 160,000 cases last Thursday alone. At this pace, the U.S. will hit 200,000 new cases a day before Thanksgiving. Hospitalizations are also at new records. That has led state and local governments to impose restrictions on activity and gatherings.
Consumer sentiment has declined in November as a result of the election and worsening pandemic conditions. The jobs recovery has continued but may reverse course soon if restrictions and fear cause consumers to retreat.
Joblessness still high: The job recovery continues. The latest data show 7.3 million people on traditional unemployment benefits, which are limited to at most six months of coverage. But 21.5 million Americans remain on some form of unemployment benefits, including pandemic unemployment assistance, which provides coverage beyond six months. Initial claims fell by 48,000 to 709,000, which still exceeds the peak in claims during the Great Recession.
Consumer sentiment declines: The initial November reading on Consumer Sentiment from the University of Michigan declined 5.9% to 77.0 from 81.8 in October. The Michigan Sentiment Index is down 23.8% from February. Consumers who identified as Republicans had a decline in sentiment of 10.9%, but even Democrat sentiment fell 2.3%. The election and rising COVID-19 cases are both factors.
The underlying gauge of future expectations was the primary source of decline as the view of current economic conditions barely changed. Consumers saw buying conditions for vehicles improve, but the vehicle buying conditions index remains well off its high for the year recorded in June. By contrast, the buying conditions for houses improved but remains higher than it was in the spring and summer.
The daily measure of consumer sentiment from Morning Consult has also declined in November. That index shows that sentiment is down 1.7% since October, so the index is down by 20.1% compared to the end of February.
Inflation rises: Prices were unchanged in October in the aggregate, but the aggregate is a product of some prices rising and some prices falling. Categories of products and services that saw price increases included food, shelter, utilities, medical care, recreation, and personal care services. Offsetting those increases were declines in other categories like energy services, car insurance, and airline fares.
Credit flows: Consumer credit continues to flow. October delivered more auto loan delinquencies, but accommodations are still keeping the loan performance stats from being normal, let alone consistent with a recession.
Loan delinquencies and defaults have been low because of stimulus support and loan accommodations. Equifax estimates that 3.3% of auto loans were under an accommodation as of Nov. 3, which is down from the end of September but higher than February. Of that, 2.6% represents more than 1.9 million auto loans that likely would have fallen into delinquency and possibly complete default by now.
Wages dip: Real hourly earnings in October grew 3.2% from a year ago, which was down slightly from September and down from a peak of 7.5% in April, but these misleading average strong gains are a function of wages shifting due to a loss of lower paying jobs combined with lower inflation.
Check back on Smoke on Cars for a video that will include updated data.