- Strong job market may drive another big Fed rate increase.
- New-vehicle sales have risen from a year ago though still limited by tight supply, high prices and low incentives.
- Used vehicle sales drop; wholesale vehicle values decline again.
The September employment report revealed a too-strong job market and raised the likelihood of the Fed doing another jumbo rate increase in early November. September saw slowing but strong job growth and a decline in the unemployment rate back to the pre-pandemic low of 3.5%. Wage growth was steady.
Jobless claims have moved higher in recent weeks but remain low by historical standards.
The light new vehicle sales seasonally adjusted annual rate (SAAR) increased in September to 13.5 million from 13.1 million in August. September sales volumes were down 1% from August but up 9.5% from last year. Tight supply, high prices and low incentives continue to limit sales.
Used sales declined in September from August and were down 10% from last year. Used retail and wholesale supply also fell in September. Wholesale vehicle values declined again in September and are now down from a year ago, according to the Manheim Used Vehicle Value Index.
Job Growth Slows in September, Remains Too High to Reduce Inflation
Job growth decelerated in September but was close to expectations and remains at a pace that is too strong for the Fed’s desire to reduce inflation.
September saw 263,000 jobs created, and the last two monthly numbers were revised for a net increase of 11,000 more jobs than originally estimated, even though job creation in August was revised down to 275,000.
Most major private sectors saw gains in jobs over August. Education and Health Services and Leisure and Hospitality saw the largest gains. Auto dealers shed 1,800 jobs, leaving employment down 80,600, or 6.1% below the February 2020 level. Total payrolls now exceed February 2020 payrolls by 514,000.
Unemployment Rate Dips to Pre-Pandemic Low
The headline unemployment rate declined back to 3.5% in September, so back to the pre-pandemic low in February 2020. The labor force participation rate fell to 62.3% from 62.4% in August. Participation is still down 1.1 percentage points from February 2020 and represents 2.9 million fewer people in the labor force compared to February 2020.
The underemployment rate, the broadest measure of unemployment, also declined to 6.7% from 7.0% in August. That rate is now back to what it was in June and July and lower than what it was before the pandemic began. Monthly average hourly earnings growth was unchanged at 0.3%, and earnings growth slowed to 5.0% compared with a year ago.
Initial jobless claims increased slightly in September, but continuing claims fell. However, both initial and continuing claims are starting to rise again in the latest weekly data. All measures remain very low by historical standards, and all measures of continuing claims remain well below what they were before the pandemic.
New-Vehicle Sales Drop Slightly Month Over Month, Improve Year Over Year
August total new-light-vehicle sales were up 9.5% from a year ago. By volume, September new-vehicle sales were down 1% from August. The September SAAR was 13.5 million, a 10% increase from last year’s 12.3 million and up 2.9% from August’s 13.1 million.
Combined sales into large rental, commercial, and government fleets were up almost 25% in September from a year ago. Sales into rental were up 18% year over year, while sales into commercial fleets were up 38%, and sales into government fleets were down 2%.
Including an estimate for fleet deliveries into dealer and manufacturer channels, the remaining retail sales were estimated to be up 8.2%, leading to an estimated retail SAAR of 11.8 million, up 0.3 million from last month, or 2.6%, and up 0.9 million or 8.5% from last September’s 11.2-million pace. The fleet share of 12.3% was down from August but up from last September’s 11.2%.
New-Vehicle Prices Stay High
The average transaction price of a new vehicle in September exceeded the average MSRP for the sixteenth month in a row, and the average price at $48,094 declined slightly but was up 6.1% from a year ago. Check back in the Newsroom for more details that will be published on Wednesday, October 12.
With the average incentive spend declining to $1,005 in September, incentives as a percentage of average transaction price fell to 2.1%, a new 20-year low.
Used-Vehicle Retail Sales Declined in September, but Supply is Healthy
We estimate that used retail sales declined 8% in September from August, and sales fell 10% from a year ago. Certified pre-owned (CPO) sales were down 12% in September compared with last year, as sales volumes declined 5% from August to September.
Using estimates of used retail days’ supply based on vAuto data, September ended at 48 days of supply, down from 51 days at the end of August but higher than how September 2021 ended at 41 days. Leveraging Manheim sales and inventory data, wholesale supply ended September at 27 days, higher than how September 2021 ended at 19 days but down one day from August.
Wholesale vehicle values, according to the Manheim Used Vehicle Value Index (MUVVI), declined 3.0% in September on a seasonally adjusted basis. The decline left the Index at 204.5, down 0.1% from a year ago. The unadjusted price change in August was a decline of 2.1%, leaving the prices down 2.3% from a year ago. Watch a replay of the Q3 MUVVI call for more details.
Jonathan Smoke is chief economist at Cox Automotive.