Auto Market Weekly Summary

New daily COVID-19 cases increased week over week as cases remain elevated about where they have been for the last two weeks. The impact of the omicron variant in the U.S. has been limited so far.

Jobless claims continue to decline to more normal levels as the job market heals. Consumer sentiment has improved slightly so far in December. Retail sales were weaker than expected in November, but spending is robust this holiday season. Inflation is part of the increase in spending, but even controlling for price increases, retail sales are up substantially from a year ago.

New construction trends strengthened in November. The Fed announced plans for reducing bond purchases more quickly and set expectations for three quarter-point rate increases in 2022.

Weaker retail sales: Retail sales were weaker than expected in November, as the initial estimate showed a seasonally adjusted total increase of 0.3% when an increase of 0.8% was expected. However, October sales were revised up and were very strong.

The November disappointment was likely a result of the holiday season starting early as consumers deal with expectations of limited supply through the holiday season.

Purchases at vehicle dealerships weakened against other goods as sales excluding motor vehicles and parts also increased 0.3% in November while sales of motor vehicles and parts declined 0.1%. Gas stations (+1.7%), sporting goods, hobby, book, and music stores (+1.3%), foodservice and drinking places (+1.0%), building material and garden equipment supplies stores (+0.7%), and clothing and accessory stores (+0.5%) were the largest gainers. Furniture, home furnishings, and electronics (-1.8%) and general merchandise stores (-1.2%) were the largest decliners.

Spending is robust this holiday season as retail sales were up 18.2% from a year ago in November. Compared to November 2020, no major category for retail sales was down. Retail sales are measured in dollars, so higher inflation plays a role in the increases being measured. The biggest year-over-year gainers were gas stations (+52%), food services and drinking places (+37%), and clothing (+35%).

Construction rises: Residential construction increased in November, and the latest data point to further growth ahead. The seasonally adjusted annualized rate of starts surged 11.8% when an increase of 3.1% had been expected. Permits increased 3.6% when growth of 0.5% had been expected. After the November increase, starts were up 8.3% from last November and up 24.4% compared to November 2019. Permits were up 0.9% y/y and up 13.5% compared to 2019. Permits lead starts, so the permitting pace at 1.712 million units was higher than the 1.679 million starts pace, and that is an indication that starts will increase in future months.

The increases in both measures of construction suggest that material shortages may be abating. Relatively good weather in November also likely helped the big increase in starts. Both single-family and multi-family were up strongly in November, as single-family starts were up 11.3% from October while multifamily starts were up 12.9%. Likewise, in permits, both single-family and multi-family increased in November.

Compared to 2019, single-family permits were up 17%, and multi-family permits were up 7%. Multifamily initially declined in the pandemic, but with demand strong and rent increases accelerating, multifamily is likely to grow in the future.

Feds to taper: The Fed announced an acceleration in their tapering of bond purchases, which are now expected to end by March 2022. Updated rate projections indicate three quarter point rate increases likely in 2022 as well. The financial markets also see three rate increases likely. The auto market has enjoyed stable and favorable credit trends all year, but we may be seeing the absolute lowest of the lows in December. Rates will likely remain low until we near the end of the Fed bond buying.

Jobless picture improves: As of December 4, 1.85 million remain on traditional unemployment benefits, which are limited to at most six months of coverage. The broadest measure of continuing claims, which had included pandemic unemployment assistance before it ended in September, increased by 511,000 to 2.46 million in the latest data and is 356,000 higher than the 2.10 million level prior to the pandemic beginning.

Initial claims increased last week to 206,000 from an upwardly revised 188,000 the prior week, which was a 52-year low. Seasonal adjustments have caused big swings in the claims numbers for the last four weeks, but it is clear that jobless claims are falling towards a normal if not below the normal level. The labor market is very close to being fully healed.

Consumer sentiment improves: The daily index of consumer sentiment from Morning Consult has been little changed this week and so far in December, but it managed a small 0.3% increase week-over-week. As a result, sentiment is up 0.2% for the month after increasing 1.1% in November following declines of 5.5% in July, 3.1% in August, 0.8% in September, and 1.7% in October. The Morning Consult Index as of Friday is down 20.5% since February 29, 2020.

The last Auto Market Report video of 2021 will be published in Smoke on Cars on Tuesday, December 21. Register for the Cox Automotive Industry Insights Webcast scheduled for Thursday, January 13, at 2 p.m. EST.