- Inflation cooled more than expected.
- Retail sales in October declined but less than expected.
- Auto loan performance deteriorated in October, but delinquencies slowed.
Inflation cooled more than expected in October as most metrics based on Consumer Price Index (CPI) data saw slower paces of increase from September and year over year.
Retail sales declined in October but came in better than expected. Miscellaneous stores and motor vehicles and parts had the biggest declines for the month. Excluding autos and parts, retail sales increased slightly in October.
New construction trends were all positive in October, indicating some market stabilization.
Auto loan performance deteriorated in October, but the increase in delinquencies slowed.
Inflation Cooled More Than Expected
Inflation cooled more than expected in October as most metrics based on CPI data saw slower paces of increase from September and year over year.
Inflation was down from 0.4% in September and lower than the 0.1% gain expected. The core CPI, which excludes Food and Energy, increased 0.2%, less than the 0.3% gain in September and what had been expected.
Housing saw a decelerating increase to 0.3% from a 0.6% jump in September. Transportation services saw a 0.8% increase, which was driven by a 1.9% increase in motor vehicle insurance. New and used cars both saw declines (0.1 and 0.8%, respectively), but the declines were less than what we have observed in actual transactions. Declines in energy, driven by a 5% decline in gas prices, helped produce the aggregate decline. According to AAA, the average price for unleaded declined more than 9% throughout October.
On a year-over-year basis, core CPI declined to a 4.0% increase from 4.1% previously and the lowest since April 2021. The overall CPI fell to 3.2%, its second-lowest reading since March 2021. Only June was lower at 3.0%.
Retail Sales in October Fell but Less than Forecasted
The initial retail sales report for October showed better-than-expected consumer spending, but spending declined, nonetheless.
The 0.1% decline was better than the 0.3% decline expected, and the September increase was upwardly revised to 0.9% from the 0.7% gain first reported.
The auto sector underperformed the rest of the retail market as sales excluding motor vehicles and parts increased 0.1% while sales of motor vehicles and parts declined 1.0%.
Category-level performance was mostly negative in October. Health and personal care stores (1.1%) and food and beverage stores (0.6%) had the largest gains. The largest monthly declines were in miscellaneous stores (-1.7%) and motor vehicle and parts dealers. Retail sales were up 2.5% year over year on a nominal basis, which was down from 4.1% in September and the weakest year-over-year performance since June.
Compared with last year, four major categories of 12 were down. Gas stations (-7.5%) and furniture, home furnishing, electronics, and appliance stores (-6.8%) were down the most. Motor vehicles and parts was up 3.3% from a year ago, while health and personal care stores (+9.6%) was the category up the most. Adjusted for inflation using the CPI, retail sales declined 0.2% for the month and were down 0.7% from a year ago.
Residential Construction Stabilizing
Residential construction appears to be stabilizing as starts and permits both increased slightly in October.
The seasonally adjusted annualized rate of starts increased by 1.9% when a small decline of 0.6% was expected, but September’s increase of 7.0% initially reported was revised to a smaller increase of 3.1%. Permits increased by 1.1% when a 1.4% decline had been expected. The increases in starts and permits were in single-family and multifamily. Regarding housing starts, multifamily starts increased by 6.3% while single-family increased by only 0.2%.
After the October increase, total starts were down 4.2% from a year ago but were up 3.0% compared to October 2019. Permits were up by 3.3% compared to 2019 in single-family but down by 13.6% in multifamily. The permit trends reflect stable but limited growth ahead, as single-family starts increased by 0.5%, but multifamily increased by 2.2%.
Permits were down 4.4% from a year ago in total, up 13.9% in single-family starts but down 26.4% in multifamily. Permits lead starts, so the permitting pace at 1.487 million units was ahead of the 1.372 million starts pace, which indicates that starts should increase slightly in future months.
Auto Loan Performance Deteriorated in October, but Delinquencies Slowed
Auto loan performance deteriorated in October, but the increase in delinquencies slowed. For loans delinquent for 60 days or more, delinquencies increased for the sixth month in a row and were up 13.1% from a year ago.
In October, 1.89% of auto loans were severely delinquent. That was unchanged from September and was the highest October rate dating back to at least 2006. Of subprime loans, 7.38% were severely delinquent. That was also unchanged for the month but the highest rate for any month dating back to at least 2006. The subprime severe delinquency rate was 69 basis points higher from a year ago, while the aggregate was 16 basis points higher.
The delinquency rate has been high all year but has not been leading to a similarly high level of defaults, but defaults increased in October after declining in September. Defaults of auto loans increased by 4.2% in total in October from September and were up 31.2% from a year ago. Defaults of subprime auto loans increased by 5% and were up 20% year over year. The default rate year-to-date through October is 2.69%. The default rate in 2019 was 2.90%.
Jonathan Smoke leads Cox Automotive’s economic and industry insights team, which tracks key metrics and trends impacting both the wholesale and retail markets for vehicles informed by the proprietary data from the company’s businesses and platforms. For 28 years, Smoke has focused on translating data and trends into relevant actionable insights for the industries that represent the biggest purchases that consumers make in their lifetimes: real estate and automotive. Smoke joined Cox Automotive in 2017.