Most of the latest economic data point to improving trends relative to a weak start to the year. Pending home sales and new home sales in March suggest housing activity will be stronger in Q2 and possibly better than last year aided by mortgage rates that are now lower than last year.
Unemployment fell to a 50-year low in April and consumer confidence rebounded. However, retail new vehicle sales have fallen as scarce deals, record prices, and 8-year highs in interest rates keep buyers at home. Year to date, the new auto SAAR is 16.7 million, just below the Cox Automotive forecast of 16.8.
Home sales improve: Like new home sales, the pending home sales index for March increased 3.8% and came in better than expected. New and pending home sales represent new contracts signed so they reflect future closings. The improving trend affirms that lower mortgage rates are encouraging more home buying activity. Stronger housing activity is leading to broader increases in consumer spending.
Consumer consumption grows: Consumer consumption in total picked up in March with strong gains in durable goods, non-durable goods and services alike. The increase in spending led to a decline in the personal savings rate as the growth in consumption outpaced growth in income.
The Personal Consumption Expenditure (PCE) Index, the key gauge of inflation that the Fed follows, confirmed the weak inflation conditions we have been seeing in other data. The PCE Index showed that that price inflation was at 1.5% in March, well below the Fed’s 2% target. The Fed acknowledged this status formally this week but indicated that the low inflation trend was likely to be “transitory.” As expected, the FOMC did not make a change to rate policy. Patience continues to be the watch word, meaning the Fed is comfortable with their current stance relative to the economy’s “healthy path.”
Consumer Confidence rebounds: Consumer Confidence in April increased 4%, recovering much of the decline observed in March. We have seen an up-and-down pattern in consumer confidence so far this year, but it is now higher than last year. However, plans to purchase a vehicle in the next 6 months declined in April after increasing substantially in March.
Stronger-than-expected job growth: Job creation in April was again much stronger than expected as 263,000 jobs were created when analysts were expecting 190,000. The prior two monthly numbers were revised up for a net increase of 16,000 more jobs than originally estimated. Average monthly job creation year to date of 205,000 is down slightly from last year’s 223,000. Job gains were strongest in professional services, healthcare, government and restaurants. Trucking and retail lost jobs and manufacturing barely improved.
Unemployment fell to a near 50-year low of 3.6%. The underemployment rate remained flat at 7.3%, which is only an 18-year low. The underemployment rate does suggest the labor force still has slack to give, as the last time unemployment was 3.6%, the underemployment rate was 6.1%. Average hourly earnings growth remained steady at 3.2% year over year.
New-vehicle sales, including fleet, drop: New-vehicle sales retreated in April as total sales were down 1.7% year over year even with one more selling day. The SAAR came in at 16.4 million, down from last month’s 17.4 million and last year’s 17.2.
Cars again declined but at a less severe rate than in March, as sales in April fell 7.5% compared to last year. Light trucks were up 1.0% year over year.
Even fleet sales were down 0.9% year over year in April, but it was sales into rental that softened (-6.5% year over year) as sales into commercial and government fleets were up 11% and 1% respectively. New retail sales were down 2% in April, and the new retail SAAR was 13.5 million, down from April 2018’s 14.1 million and March’s 14.0 million. This was the weakest April for retail sales in 5 years. Retail sales are down 4% YTD. Total new sales are down 2% YTD, while fleet sales are up 4% YTD.
Average incentive spend declined by 6% in April over March and is down 7% year over year. The days’ supply for April was 76, up 5 days year over year. Car days’ supply came in 5 days lower than last year, but truck days’ supply was up 8 days.
Looking ahead: On May 7, Cox Automotive will publish the Manheim Used Vehicle Value Index, the automotive industry’s only used vehicle index that is both seasonally adjusted and adjusted for changes in mix and mileage of vehicles sold.