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Smoke on Cars

Auto Market Weekly Summary: February 6


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Article Highlights

  1. Job growth accelerated, the unemployment rate fell, and wages stalled.
  2. New-vehicle sales pace hit 15.7 million on robust fleet sales.
  3. The Fed raised rates by a smaller amount than in December.

The light new-vehicle sales pace increased in January to 15.7 million, with strength coming from fleet sales. New-vehicle prices declined slightly, and incentives increased.

The headline unemployment rate declined to 3.4% from 3.5% in January. This is a 54-year low in the unemployment rate and is the lowest unemployment rate that the U.S. had seen except during periods of war when millions were conscripted into service.

Job growth in January accelerated and surprised to the upside, while the unemployment rate fell, but wage growth decelerated. Jobless claims in January failed to show any signs of further deterioration in labor.

The Fed raised rates another quarter point. Auto loan rates moved higher in January ahead of that move. The Fed isn’t done yet, and the strong labor market might make them do even more.

Job Growth Accelerated, and the Unemployment Rate Fell

Job growth in January accelerated, and the unemployment rate fell, but wage growth decelerated.

January saw 517,000 jobs created when 190,000 had been expected. The last two monthly numbers were revised for a net increase of 71,000 more jobs than originally estimated.

Most sectors saw gains in January, with Leisure and Hospitality and Education and Health Services delivering the largest gains. Only the Information sector, which is mainly media, lost jobs. The services sector collectively added 397,000 jobs. Auto dealers shed 300 jobs in January, which left employment at dealers down 52,900 or 4% below the February 2020 level. Total payrolls now exceed February 2020 payrolls by 2.7 million or 1.8%.

The headline unemployment rate declined to 3.4% from 3.5% in January. This is a 54-year low in the unemployment rate and is the lowest unemployment rate that the U.S. had seen except during periods of war when millions were conscripted into service.

The labor force participation rate increased to 62.4% from 62.3% in December. Participation is down 0.9 percentage points from February 2020 and represents 2.4 million fewer people in the labor force compared to February 2020 despite having 2.7 million more jobs.

The underemployment rate, the broadest measure of unemployment, increased to 6.6% from 6.5% in December, which was a 53-year low. Monthly average hourly earnings growth decelerated to 0.3% from an upwardly revised 0.4% in December. Year-over-year earnings growth decelerated to 4.4% from an upwardly revised 4.8% in December.

Jobless claims in January failed to show any signs of further deterioration in the labor market. Seasonally adjusted initial claims fell over the month and ended January at the lowest level since April 2022. Continuing claims, while higher now than most of last year, remain lower than they were in 2020 before the pandemic started, and relative to the job base, the number of people on unemployment benefits remains very low.

Fed Increased Rates but by Less Than in December

The Federal Reserve increased the Federal Funds rate by 25 basis points (BPs), a smaller increase than December’s 50 BPs increase. The Fed Funds Rate is now in the 4.50% to 4.75% range, which is the highest since 2007.

The Fed remains hawkish about needing additional increases, which will likely be in quarter-point increments in March and again in May. Such moves would bring the terminal Fed Funds Rate to 5-5.25%. Auto loan rates already moved higher again in January. [See the related Smoke on Cars post published last week.]

New-Vehicle Sales Pace Rose in January on Strong Fleet Sales

Total new-light-vehicle sales were up 4.2% in January from a year ago, with the same number of selling days as January 2022. By volume, new-vehicle sales were down 18.6% from December, but January usually sees 25-30% declines. This January’s sales pace was 15.7 million, up from last year’s 15.1 million and up 17.7% from December’s upwardly revised 13.4 million.

The new-vehicle sales strength in January was in fleet. Combined sales into large rental, commercial, and government fleets were up 58% from a year ago. Sales into large rental fleets were up 96% year over year, while sales into commercial fleets were up 31%, and sales into government fleets were up 65%.

Including an estimate for fleet deliveries into dealer and manufacturer channels, the remaining retail sales were estimated to be up 0.3%, leading to an estimated retail seasonally adjusted annual rate (SAAR) of 13.2 million, which was down 0.2 million from last year’s pace, but up 1.7 million from last month’s pace. Now at 16.5%, fleet market share is estimated to have gained 3.3% market share compared to last year’s share of 13.2%. That is a 2.3% share gain compared to last month’s 14.2% market share.

Early Estimates Show Prices Slipped from Record Highs, Incentives Rose

Based on preliminary data, the average transaction price of a new vehicle in January exceeded the average manufacturer’s suggested retail price (MSRP) again. Still, the average price declined 0.8% and was up 5.8% from a year ago. The average MSRP fell 0.9% in January from December and was up 7.3% from a year ago. [Check back later this week for a report on Kelley Blue Book average transaction prices.]

Manufacturers spent an average of $1,386 per vehicle in January, up 4.8%. Incentives as a percentage of average transaction price increased to 2.8%, still low by historical standards by the highest level since April 2021. Pricing power has declined as the new-vehicle supply has grown.

Jonathan Smoke is the chief economist at Cox Automotive.

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