- Rising energy and vehicle prices cause inflation pressure.
- Auto loan performance improves with some government help.
- Consumers becoming more confident,
The downward trend in new daily COVID-19 cases continues. Improving conditions are leading to rollbacks of restrictions, and economic activity and employment are improving as a result.
Traditional jobless claims are seeing gradual declines. However, pandemic assistance claims, which have been extended through September, are growing.
Joblessness remains high: Traditional and new jobless claims are trending down as COVID-19 conditions improve. Traditional continuing claims declined by 193,000 to 4.34 million as of February 27.
However, in the latest data, 20.1 million remain on some form of unemployment benefits, including pandemic unemployment assistance, which provides coverage beyond six months.
Initial claims fell by 42,000 to 712,000, which was just 1,000 more than the lowest weekly level of claims during the pandemic, the week of November 6, 2020. However, initial claims are still higher than the worst week in the Great Recession.
Inflation stays low: Though still low by traditional standards, both core and headline inflation increased in February with rising energy prices driving up headline inflation more than the core.
The headline aggregated measure increased 0.4%, while the core Consumer Price Index, which excludes Food and Energy, increased 0.1% on a seasonally adjusted basis from January.
The February headline increase was assisted by a 3.9% increase in energy costs as unleaded gasoline rose 7.2%. Low increases in food and rent helped contain the overall price index along with declines in many other products and services like airline fares and hotel lodging rates, which saw increases, according to non-government data sources. On a year-over-year basis, the core CPI declined to 1.3%, which was the lowest year-to-year increase since June. The overall CPI increased to 1.7%, which was the highest year-over-year increase since last February but still low by historical standards.
Vehicle prices rising: According to the CPI, new car and truck prices increased 0.1% on a non-seasonally adjusted basis in February. Used cars and trucks increased 0.4%. Our data show modest retail price declines in February. Average transaction prices on new light vehicles according to Kelley Blue Book fell 0.1% in February, while the average retail used vehicle price on Dealertrack fell 1.4%.
However, we are seeing a decidedly different trend in wholesale prices, which normally lead retail prices by about six weeks. The non-seasonally adjusted Manheim Used Vehicle Value Index increased 4.0% in February.
Auto loan performance improves: Consumer credit declined in January, as credit card balances declined. Auto loan performance improved in February as new stimulus likely helped bring some accounts current, and performance remains better than a year-ago. Accommodations continue to be above normal but have drifted down.
The Federal Reserve reported that Consumer Credit, excluding housing-related debt, declined in January by $1.3 billion. Revolving credit (credit card balances) declined by $9.9 billion while nonrevolving debt (auto loans and student loans) increased by $8.6 billion.
Auto loan performance improved in February as January stimulus payments, restored enhanced unemployment benefits, and improving employment conditions helped to reduce severe delinquencies. Loan accommodations also continued to play a role.
Equifax estimates that 2.3% of auto loans were under accommodation as of the end of February, which was down from 2.5% at the end of January and 2.8% at the end of 2020. Relative to the level of accommodation pre-pandemic, approximately 1.2 million auto loans currently do not have payments due and have frozen statuses. These are the loans most likely to have fallen into delinquency and possibly complete default by now.
In February, 1.42% of auto loans were severely delinquent, which was a decline from 1.44% in January; 5.14% of subprime loans were severely delinquent, which was a decline from 5.21%. Sixty-day delinquencies declined in February for the first time since August, as delinquencies were down 12.4% from a year ago.
Better than normal loan performance and strong vehicle values have helped auto credit access improve in five of the last six months. Our Dealertrack Auto Credit AvaiIability Index measured loosening of credit in September, October, November, December, and again in February after tightening in January. Still, credit remains tighter than in February 2020 before the pandemic began.
Consumer sentiment improves: Consumer sentiment improved on both the University of Michigan and the Morning Consult indices so far in March.
The initial March reading on Consumer Sentiment from the University of Michigan jumped 8% to 83.0 from 76.8 in February. With the increase, the Michigan Sentiment Index is down 17.8% from February 2020.
The underlying gauges of current conditions and future expectations both improved. Consumers saw buying conditions for vehicles improve from February, but the buying conditions level is still down from a year ago and not far from the lowest level in more than a decade. Buying conditions for houses also improved. The daily measure of consumer sentiment from Morning Consult saw strong improvements in February that have extended into March. The index was up 2.3% over the seven days that ended March 12, leaving it at the highest level since March 18, 2020, and up 8% since the end of January.