Auto Market Weekly Summary

The trend in new daily COVID-19 cases resumed increasing last week after stalling the week before. The FDA paused the administration of the Johnson & Johnson vaccine, but the vaccination pace still increased. Rising cases and negative news about vaccines helped take the wind out of the upward trend in consumer sentiment. 

Even so, economic activity is continuing to pick up, and new jobless claims tumbled to their lowest level during the pandemic last week. Retail sales jumped in March with every category, improving from February and all but groceries improving year over year. New construction recovered from the weather-induced stall in February. Consumer credit is growing as auto loan performance continues to improve and encourages lenders to be more aggressive.

Retail sales soar: Retail sales jumped in March as recovery from February’s storms, new stimulus, and improving employment conditions drove spending higher. Retail sales increased 9.8% in March, and February’s decline was revised to be less severe than originally estimated. 

Auto sales outperformed against other goods as sales excluding motor vehicles and parts increased 8.4% while motor vehicles and parts were up 15.1%. All categories saw increases, and the biggest gainers were sporting goods, clothing and accessories, and auto retailers. With the increase in March, retail sales were up 27.7% from a year ago. Compared to the lockdown period last year, only grocery stores were down year-over-year.

Housing recovers: Residential construction also recovered strongly in March from the disruption from severe winter weather in February. The seasonally adjusted annualized rate of starts jumped 19.4%, and permits increased by 2.7%. Starts are typically impacted the most in the winter months. 

After the March increase, starts were up 37% from last March and up 45% compared to March 2019. Permits were up 30% from a year ago and up 33% compared with 2019. Permits lead starts, and the permitting pace at 1.766 million units still exceeds the 1.739 million starts pace, but the gap is closing. 

Starts should continue to increase, but the pace of growth will likely slow unless permits pick up soon. Underneath the totals, the split in the composition of new construction is no longer as wide as it was last year. Single-family permits were up 36% from a year ago, while multi-family permits, which had been lagging, were up 20%.

Consumer credit rises: The Federal Reserve reported that consumer credit excluding housing-related debt increased in February by $27.6 billion. Revolving credit (credit card balances) increased by $8.1 billion while non-revolving debt (auto loans and student loans) increased by $19.5 billion. 

Auto loan performance improved again in March as stimulus payments and additional government support as well as tax refunds 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 March, which was unchanged from 2.3% at the end of February and down from 2.5% in 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 March, 1.35% of auto loans were severely delinquent, which was a decline from 1.42% in February. Meanwhile, 4.95% of subprime loans were severely delinquent, which was a decline from 5.14%. Loans more than 60 days in delinquency declined in March for the second consecutive month, and delinquencies were down 9% from a year ago.

Better than normal loan performance and strong vehicle values have helped auto credit access improve in six of the last seven months. Our Dealertrack Auto Credit Availability Index measured loosening of credit in September, October, November, December, and again in February and March after tightening in January. Credit remains modestly tighter than February 2020 before the pandemic began.

Consumer sentiment improves: The initial April reading on Consumer Sentiment from the University of Michigan increased 1.9% to 86.5 from 84.9 in March. This left the index down 14.3% from February 2020. Only the underlying gauge of current conditions improved as future expectations were unchanged. 

Consumers saw buying conditions for vehicles improve from March, 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 declined. 

The daily measure of consumer sentiment from Morning Consult saw gains in the first 11 days of April but lost ground last week with COVID-19 cases increasing and negative news about the Johnson & Johnson vaccine. The index is now unchanged over the last seven days, leaving it up 1.7% in April.

Job picture brightens: Jobless claims are trending down as economic activity recovers. Traditional continuing claims were unchanged week-to-week at 3.73 million as of April 3 but down by 110,000 over the last four weeks. In the latest data, 16.9 million remain on some form of unemployment benefits, including pandemic unemployment assistance, but those numbers are down by 1.28 million over the last four weeks. Initial claims fell by 193,000 to 576,000, the lowest level of claims since the pandemic began.

An Auto Market Report video will be published in Smoke on Cars on Tuesday, April 20.