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Smoke on Cars

Auto Market Weekly Summary

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Article Highlights

  1. Q3 economic growth was the strongest in nearly two years.
  2. Consumer spending grew in October but at a slower rate.
  3. Sales of new and existing homes fell on high mortgage rates.

Economic growth for the third quarter was revised up in the latest estimate to the strongest in almost two years. Accelerating growth in consumer spending was a major driver of the growth, but the opposite is happening in the fourth quarter.

Consumer spending grew in October but at a decelerated pace. The savings rate increased slightly. The Personal Consumption Expenditure Index’s measures of inflation are at the lowest year-over-year levels since the spring of 2021.

All types of home sales declined in October as mortgage rates hit 23-year peaks, but rates came down in November and are continuing lower into December.

Consumer sentiment measures were mixed in October. Overall confidence improved on brighter expectations for the future.

Q3 Economic Growth was the Strongest in Nearly Two Years

The increase in third-quarter real GDP was revised up to a 5.2% annualized increase from the 4.9% originally estimated. Personal consumption was revised down to an increase of 3.6% from 4.0%.

Growth in spending on goods was revised down to 4.7% from 4.8%. Spending on services was revised down to a gain of 3.0% from 3.6%. Gross private investment was upwardly revised to an increase of 10.5% from 8.4%. Real GDP year-over-year growth was revised up to 3.0% from 2.9%.

Consumer Spending Grew in October but at a Slower Rate

Consumer spending decelerated in October, as expected. Personal income growth slowed to a 0.2% gain from 0.3% previously, as expected. Employee compensation growth decelerated to 0.2% from an upwardly revised gain of 0.5% in September. Government transfer payments declined 0.1% after falling 0.3% in September, as unemployment compensation accelerated to growth of 6.0%. Proprietors’ income increased 0.4%, down from an upwardly revised 1.1% in September. Personal income from dividends increased, but interest income growth slowed.

Spending on goods declined while spending on services saw slowing growth. Spending on durable goods fell 0.5%, while spending on nondurable goods was unchanged, and spending on services increased 0.4%. Spending on motor vehicles and parts declined 1.2% following a downwardly revised 1.2% increase in September. The personal savings rate rose to 3.8%.

The Personal Consumption Expenditure Index (PCE), the key gauge of inflation that the Fed follows for adjusting interest rates, was unchanged in October and was lower than expected. Overall price inflation, according to the PCE, fell to 3.0% in October compared with a year ago and from 3.4% in September, while the core inflation rate declined to 3.5% from 3.7% in September.

PCE measures of inflation are at the lowest year-over-year levels since the spring of 2021. Factoring in inflation, real spending increased 0.2% in October, decelerating from a downwardly revised 0.3% in September.

Sales of New and Existing Homes Fell on High Mortgage Rates

Existing home sales declined again in October, which was worse than expected.

The existing home sales seasonally adjusted annual rate (SAAR) declined 4.1% to 3.79 million from a downwardly revised 3.95 million in September. At the October rate, existing home sales were down 14.6% from a year ago and to the slowest pace since the lows of the Great Recession in 2010.

Inventory of existing homes increased 1.8% to 1,150,000 units, down 5.7% from a year ago. Inventory keeps moving quickly, as 66% of the homes sold in October were on the market for less than a month, and the typical time on the market was 23 days, up from 21 days in September and October last year. The months’ supply of homes for sale increased to 3.6, about half of what is considered normal.

The median sales price declined to $391,800, up 3.4% from a year ago. The housing market remains very sensitive to mortgage rates, which reached new 23-year highs in mid-October.

Based on new contracts signed on newly constructed homes, new home sales declined in October and were weaker than expected. New home sales at an annualized pace of 679,000 were down 5.6% from September but up 17.7% from a year ago. Compared to October 2019, new home sales were down 5.8%.

New home inventory increased 1.4% from September but was down 5.8% from a year ago. New home supply rose to 7.8 months from an upwardly revised 7.2 months in September.

With the decline in existing home sales, total home sales were down 4.3% in October and down 10.9% from a year ago. Pending home sales, which are new contracts on existing homes, declined 1.5% in October following a surprise 1% increase in September. Pending home sales were down 6.6% year-over-year.

Consumer Confidence Improves on Brighter Future Expectations

Consumer Confidence, according to the Conference Board, increased 2.9% in November, as future expectations improved by 7%. Consumer confidence was up 0.6% from a year ago. Plans to purchase a vehicle in the next six months increased and were up from a year ago.

Consumer sentiment ended November better than it started but was still down compared to October, according to the sentiment index from the University of Michigan. The Michigan index declined 3.9% for the month but was up 1.5% from the mid-month reading. The final index number for the month was up 8.1% from a year ago.

Consumer expectations for inflation increased, with median expectations for inflation over the next year at the highest level since April. The consumer’s view of buying conditions for vehicles declined slightly as views of prices were less negative, but views of interest rates deteriorated.

Jonathan Smoke
Chief Economist

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.

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