Job growth in February decelerated but was still stronger than expected. The unemployment rate increased, and wage growth decelerated. Jobless claims are rising again. Continuing claims are fast approaching the highest level in over a year. However, claims remain at historically low levels relative to the job base.
Tax refund season is well ahead of last year in terms of the distribution of refunds, but the total dollars dispersed and the average refund are both down.
The used retail market appears to be losing momentum compared to the strong start of the year. That is consistent with demand softening from average refunds being lower, retail prices increasing, and interest rates continuing to rise. However, used supply is very tight, and sales are strong enough to force dealers to restock from a tight wholesale market. As a result, wholesale vehicle values increased again in February.
Job Growth Slowed but Stronger Than Expected in February
Job growth in February decelerated but was still stronger than expected, the unemployment rate increased, and wage growth decelerated.
February saw 311,000 jobs created when 225,000 had been expected. The numbers for the prior two months were revised for a net decline of 34,000 fewer jobs than originally estimated.
Employment sectors saw mixed trends. Leisure and Hospitality and Professional and Business Services had the largest gains. Information, Manufacturing, and Financial Activities saw losses. The services sector collectively added 245,000 jobs. Auto dealers shed 600 jobs in February, which left employment at dealers down 53,900 or 4.1% below the February 2020 level. Total payrolls now exceed February 2020 payrolls by 2.98 million or 2.0%.
Jobless Rate Edges Higher in January
The headline unemployment rate increased to 3.6% from 3.4% in January. The labor force participation rate increased to 62.5% from 62.4% in January. Participation is down 0.8 percentage points from February 2020 and represents 2.1 million fewer people in the labor force compared to February 2020 despite having 2.98 million more jobs.
The underemployment rate, the broadest measure of unemployment, increased to 6.8% from 6.6% in January. Monthly average hourly earnings growth decelerated to 0.2% from 0.3% in January. Earnings growth y/y accelerated to 4.6% from 4.4% in January.
Jobless Claims Rise But Remain Historically Low
Initial claims are increasing again. Continuing claims, which represent people who previously filed and remain on traditional unemployment compensation, remain slightly lower before the pandemic but are now at the highest level since mid-December.
The labor market is not as strong as a year ago, and we are seeing more deterioration in the jobless claims data. However, jobless claims remain at historically low levels relative to the job base.
Tax Refund Distribution Ahead of 2022 but Refunds Are Lower
The 2023 tax refund season is well ahead of last year in terms of the distribution of refunds, but the average refund is down.
With statistics through the week ending March 3, more than $127 billion in refunds have been issued. While the number of refunds issued is 11% ahead of last year, 1.5% less has been disbursed than last year and the average refund at $3,028.
Used-Vehicle Retail Sales Decline in February
Cox Automotive’s same-store estimates on Dealertrack indicate that used retail sales declined 5% in February from January and were down 9% from a year ago. Certified pre-owned (CPO) sales in February increased by 2% from January and were up 7% from a year ago. [Check back in the Newsroom tomorrow for more details.]
The Dealertrack estimates could be understating sales due to a rise in cash buying, a trend for the last nine months as interest rates have risen to 20-year highs.
Implied sales based on vAuto data indicate that used retail sales are still up over last year. However, both the Dealertrack estimates and the vAuto estimates suggest that momentum is declining. That is consistent with demand softening from average refunds being lower, retail prices increasing, and interest rates continuing to rise.
Despite used demand losing some momentum, supply is very tight. Using estimates of used retail days’ supply based on vAuto data, an initial analysis indicates February ended near 41 days’ supply, down from 48 days at the end of January and 13 days lower than how February 2022 ended at 54 days. [Check back in the Newsroom later this week for a full report.] Leveraging Manheim sales and inventory data, wholesale supply is estimated to have finished February at 24 days, down two days from the end of January and down five days from how February 2022 ended at 29 days.
Wholesale Used-Vehicle Prices Rise
With tight supply, sales are forcing dealers to restock from a tight wholesale market, and as a result, wholesale vehicle values continue to increase. Wholesale vehicle values, according to the Manheim Used Vehicle Value Index, rose 4.3% in February on a seasonally adjusted basis. The increase pushed the Index back up to 234.5, down 7% from a year ago. The unadjusted price change in February was an increase of 3.7%, leaving the unadjusted average price down 5.6% from a year ago.
Register today: Join us for the Q1 2023 Cox Automotive Industry Insights and Forecast Call hosted by Chief Economist Jonathan Smoke and the Industry Insights team on Monday, March 27, at 11 a.m. EDT. During this 90-minute session, you will hear how the auto industry performed in the first quarter and how the Cox Automotive team sees the industry progressing this year.
Jonathan Smoke is the chief economist at Cox Automotive.