Auto Market Weekly Summary

New daily COVID-19 cases continued to decline last week, but new jobless claims increased from the prior week. The change in trend could just be noise following impact of Memorial Day holiday period leading to lower claims and the following full week showing some bounce back. Initial claims are expected to continue to decline.

Jobless claims reverse: As of May 29, 14.8 million Americans remain on some form of unemployment benefits, and that total declined by 560,000 from the prior week. 

With the American Rescue Plan, pandemic assistance and enhanced unemployment benefits were set to continue through September, but a dozen states are ending the enhanced benefits in June or July to encourage beneficiaries to return to work. Initial claims increased last week to 412,000, but claims are expected to continue a downward trend in future weeks.

Consumer sentiment declines: Consumer sentiment lost ground this week, so June is now down relative to May, continuing the trend from April.

The daily index of consumer sentiment from Morning Consult declined four of the last five days as of Friday, so sentiment declined 1.2% in the last week. The decline leaves sentiment down 1.1% for the month, following a similar decline in May. The strong recovery pattern in February, March, and April has stalled. The Morning Consult Index as of Friday is down 12.6% since February 29, 2020.

Retail sales fall: Retail sales declined in May coming off the stimulus and reopening fueled increases in March and April. All categories saw gains year over year.

The April gain in retail sales was revised up to a 0.9% increase. Auto sales underperformed against other goods as sales excluding motor vehicles and parts declined 0.7% in May while sales of motor vehicles and parts were down 3.7%. The biggest retail gainers included food service and drinking places (+1.8%), department stores (+1.6%), clothing and accessories stores (+3%), and health and personal care stores (+1.8%). Retail sales were up 28.1% in May from a year ago when some areas remained closed down last year. Compared to May 2020, no major category for retail sales was down

Construction mixed: New construction trends were mixed in May with starts increasing but permits declining. Rapidly increasing prices may be slowing demand for more housing later in the year.

The seasonally adjusted annualized rate of starts increased 3.6%, but permits declined 3.0%. After the May increase, starts were up 50% from last May and up 21% compared to May 2019. Permits were up 35% from a year ago and up 26% compared to 2019. Permits lead starts, so the permitting pace at 1.68 million units exceeds the 1.57 million starts pace, but the gap is narrowing as permitting slows. 

Material shortages and associated increases in costs as well as labor shortages have been holding back activity this spring. Increases in new home prices may also be slowing demand for the finished product and therefore leading to fewer new permits. Single family permits declined 2% in May while multi-family permits declined 6%. Compared to 2019, single family permits were up 36%, and multi-family permits were up 9%.

Fed updates forecast: The Fed revised up its forecast for growth and inflation and communicated that rate increases could start as soon as 2022. That sent equity markets down, but the movement in bond market yields seems to be in alignment with the Fed’s view that the recent inflation growth is transitory. 

It was the Fed’s fourth open market committee meeting for the year, and it remained steadfastly committed to zero rate policy and the quantitative easing program at least for this year and through 2022. However, the Fed upgraded its expectations for economic growth and inflation in 2021, and more Fed officials see rate changes starting in 2023 and possibly as early as 2022. 

For the summer, trends in the economy, like declining unemployment, and trends in the auto market, like changing vehicle values, are more likely to impact the rates consumers see on auto loans. Auto loan rates remain attractive, but average rates have increased so far in June. However, subprime borrowers continue to see much better rates than last year or even 2019.

Used supply stabilizes: Supply conditions have moderated in the used vehicle market, and wholesale price increases have slowed and have likely reached their peak. Retail prices continue to rise, but the pace of increase is slowing too.

Used vehicle sales have slowed since April when the market saw the best retail sales month in history, but sales remain on pace with 2019, which was the strongest year for used retail sales. With the sales pace slowing and inventory slowly improving, used vehicle supply conditions have moderated, and we are likely now at the peak of wholesale used vehicle values. 

The Manheim Used Vehicle Value Index increased only slightly in the first 15 days of June as wholesale price increases likely reached their peak last week. The seasonally adjusted index increased 0.3% comparing the first 15 days of June to the month of May. The non-seasonally adjusted monthly change was 1.1%. Last week saw a 0.2% increase in three-year-old Manheim Market Report values, which was the lowest weekly increase in 20 weeks. Retail price increases are also slowing now, but average retail prices are again higher than wholesale and are increasing at a greater rate.

An Auto Market Report video will be published in Smoke on Cars on Tuesday, June 22. Also, the Mid-Year Review, hosted by Jonathan Smoke and the Industry Insights team, is scheduled for Monday, June 28.