Auto Market Weekly Summary: June 5

At the start of June, the outlook appears to be improving with the passage of the increase in the debt ceiling and a strong jobs report for May.

The May employment report represented a resilient labor market with accelerating job growth but an increasing unemployment rate and decelerating wage growth. The jobs gain of 339,000 was much stronger than expected, and figures for previous months were revised up. Most major industry sectors added jobs in May. Services again represent most of the gains.

As has been the case for over a year, the May employment report won’t be taken well by the Fed, but at least wage growth slowed. We will have the inflation report for May before their next rate decision on June 14. Still, the Fed will likely take a pause and make no change to policy as we wait for more evidence of changing economic conditions in response to what they have already done.

Initial jobless claims are increasing, are higher year-over-year and higher than they were before the pandemic began. Continuing claims, representing people who previously filed and remain on traditional unemployment compensation, have declined over the last month and are below what they were before the pandemic. The labor market is not as strong as a year ago, but the metrics are varied and do not indicate major deterioration or signs of significant stress emerging.

New vehicle sales by volume were the highest in May since May 2021, but the SAAR slowed from April’s robust 16.1 million rate. Sales into fleet and increasing incentives contributed to the 23% year-over-year volume gains. 

All measures of consumer sentiment declined in May, but worries about the debt ceiling likely contributed to the declines. With that risk off the table, June may see improvement.

Job Growth Unexpectedly Accelerated

Job growth in May accelerated when deceleration was expected, but the unemployment rate increased.

May saw 339,000 jobs created when 195,000 had been expected. The prior two monthly numbers were revised up for a net increase of 93,000 more jobs than originally estimated. As a result, May built upon what is now a two-month job growth acceleration trend.

Most major employment sectors saw job gains in May. Education and Health Services again had the largest increase. Information and manufacturing had small losses. The services sector collectively added 257,000 jobs. Auto dealers added 2,200 jobs in May, which left employment at dealers down 59,600, or 4.5% below the February 2020 level. Total payrolls now exceed February 2020 payrolls by 3.7 million or 2.5%.

The Unemployment Rate Edged Up

The headline unemployment rate increased to 3.7%, the highest level since last October. The labor force participation rate was steady at 62.6%. Participation is down 0.7 percentage points from February 2020 and represents 1.9 million fewer people in the labor force compared to February 2020 despite adding 3.7 million more jobs.

The underemployment rate, the broadest measure of unemployment, increased to 6.7% from 6.6% in April. Monthly average hourly earnings growth decelerated to 0.3% from a downwardly revised 0.4% in April. Earnings growth year-over-year decelerated to 4.3% from 4.4% in April.

Initial jobless claims are higher than a year ago and higher than before the pandemic began. Continuing claims, representing people who previously filed and remain on traditional unemployment compensation, have declined modestly over the last month and are below what they were before the pandemic.

The labor market is not as strong as a year ago, but the metrics are varied and do not indicate major deterioration or signs of significant stress emerging. Moreover, jobless claims remain at historically low levels relative to the job base.

New-vehicle Sales Rose 23% From a Year Ago

Total new light-vehicle sales were up 23% in May compared with a year ago with one more selling day. By volume, new-vehicle sales were flat with April but at the highest level since May 2021.

The May SAAR was 15.0 million, a 20% increase from last year’s 12.6 million but down 6% from April’s 16.1 million.

The strength in May was again supported by strong growth of sales into fleet. Combined sales into large rental, commercial, and government fleets were up 45% from a year ago. Sales into large rental fleets were up 74% from last May, while sales into commercial fleets were up 20%, and sales into government fleets were up 57%.

Including an estimate for fleet deliveries into dealer and manufacturer channels, the remaining retail sales were estimated to be up 20.4%, leading to an estimated retail SAAR of 12.7 million, up 2.0 million from last year’s pace but down 0.7 million from last month’s pace. The fleet share of 16.8% was a 1.8% gain compared to last year’s share of 15.0% but was a 0.7% decline from last month’s estimated 17.5% share.

Consumer Sentiment Dips, but Vehicle Purchase Plans Improve From Last Year

The Conference Board Consumer Confidence Index^® declined 1.4% in May, as views of the present situation and future expectations both declined. Consumer confidence edged down 0.9% from a year ago.

Plans to purchase a vehicle in the next six months increased and were up year over year.

The Confidence Board index did not decline as much during the pandemic as the sentiment index from the University of Michigan, but both series fell in May. The Michigan index declined 6.8% for the month but was up 1.4% from a year ago. Consumers’ views of vehicle buying conditions declined in May to the lowest level this year but remained better than a year ago.

The daily index of consumer sentiment from Morning Consult declined 1.8% in May. Consumer attitudes have been sensitive to inflation and especially the price of gasoline for over a year now, but gas prices fell in May. According to AAA, the national average price for unleaded gas declined 1% in May to $3.57 per gallon, which was down 23% from a year ago.

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.