Auto Market Weekly Summary: October 31

Last week featured mixed news with enough strength in the economy and consumer spending to result in more rate increases and communication of more increases to come from the Fed this week. Check back on Smoke on Cars for additional commentary after the announcement on Wednesday, November 2.

The third quarter saw a strong rebound in real GDP growth to 2.6% from declines in the prior two quarters. Much of the increase in Q3 was driven by surging exports. Consumer spending growth slowed, and private investment declined with inventories and residential construction declining.

While consumer spending growth was steady in September, personal income growth was stable and strong. Core inflation accelerated, but real spending growth was positive and stable. However, the personal savings rate fell to the lowest level since November 2007.

All forms of home sales declined in September. Total home sales were down 23% from a year ago. Pending home sales were down 31% year over year.

Initial and continuing jobless claims increased in the latest data but remain low by historical standards. Consumer sentiment metrics were mixed in October.

First GDP Estimate Shows Topline Growth, Increased Government Spending

The first estimate of third-quarter real GDP measured an increase of 2.6% annualized, which followed the 0.6% decline in the second quarter. Personal consumption decelerated to growth of 1.4% from 2.0% in the prior quarter.

Spending on goods declined by 1.2% while spending on services decelerated to growth of 2.8%. A sharp decline in imports resulting in surging next exports delivered two-thirds of the gain in GDP for the quarter.

Government spending increased for the first time in six quarters. Gross private investment declined 8.5% from inventories declining and residential construction declining. With the increase in Q3, real GDP was up 1.8% from a year ago.

Consumer Spending Stronger Than Expected in September

Consumer spending growth was steady in September and stronger than expected with nominal growth of 0.6% from an upwardly revised increase of 0.6% in August. Personal income growth was stable and strong at 0.4%.

Employee compensation growth accelerated to 0.5% in September, and government transfer payments declined by 0.1%. Proprietors’ income growth slowed to 0.2%.

Spending on durable goods increased by 0.5% in September, spending on nondurable goods increased by 0.2%, and spending on services increased by 0.8%. Spending on motor vehicles and parts increased by 1.0% following a 0.8% increase in August.

The personal savings rate declined to 3.1%, which was the lowest level since November 2007.

The Personal Consumption Expenditure (PCE) Index, the key gauge of inflation that the Fed follows, increased by 0.3% in September, which was unchanged from August. According to the PCE, overall price inflation was unchanged at 6.2% in September compared with a year ago, while the core inflation rate increased to 5.1% from 4.9% in August. Factoring in inflation, real spending increased by 0.3% in September, which was unchanged from an upwardly revised August.

Total Home Sales See Double-Digit Decline From a Year Ago

New-home sales, which are based on new contracts signed on newly constructed homes, declined at a double-digit pace in September, but the decline was less than expected. New-home sales at an annualized pace of 603,000 were down 10.9% from the previous month and down 17.6% from a year ago. Compared to September 2019, new home sales were down 16.1%.

New-home inventory increased by 13.6% from August and was up 50.8% from a year ago. New-home supply increased to 9.2 months, which is about 50% higher than what is considered normal.

In September, 28% of the new homes sold were on homes not yet started, while 44% were under construction, and 28% were completed units.

With the decline in both new and existing home sales in September, total home sales were down 2.6% for the month and down 23.1% from a year ago. Pending home sales, which are new contracts signed on existing homes, declined more than expected with a 10.2% drop in September from August when a decline of 4% had been expected. With the decline, pending sales were down 31% from last year.

Jobless Claims Remain Low Than Pre-Pandemic Levels

Seasonally adjusted initial jobless claims increased by 3,000 to 217,000 for the week ending October 22. Non-seasonally adjusted claims increased by 4,500. Both measures have increased over the last four weeks, but the nonseasonal number remains lower than in 2020 before the pandemic began.

Continuing claims increased by 55,000 from the previous week, bringing the total up to 1.44 million as of the week ending October 15. That level of continuing claims was 325,000 lower than it was prior to the pandemic but the highest level in 28 weeks. The broadest measure of continuing claims declined by 2,400 to 1.22 million in the latest data, which lags the traditional number and is not seasonally adjusted. That total measure is down 81,000 over the last four weeks and is 881,000 lower than the pre-pandemic level.

Consumer Sentiment Measures Mixed, Plans to Purchase a Vehicle Rebounds Strongly

The Conference Board Consumer Confidence Index® declined 4.9% in October when a smaller 1.9% decline had been expected, and the September index was also revised down. Most of the index decline was driven by a 7.5% decline in views of the present situation. Plans to purchase a vehicle in the next six months rebounded strongly to the highest level since July 2020 and was up substantially from a year ago.

The confidence index has not declined as much this year as the reading on Consumer Sentiment from the University of Michigan but that series improved in October. The Michigan index increased by 2%, but its underlying measures moved in different directions with views of current conditions improving and expectations declining.

The daily index of consumer sentiment from Morning Consult has declined 1.6% so far in October.

Jonathan Smoke is the chief economist at Cox Automotive.