Auto Market Weekly Summary

Highlights:

• Headline inflation and core CPI increased by 0.2% in July. This reflects controlled price pressures and is the lowest year-over-year CPI since March 2021.
• Consumer spending rose significantly, with retail sales up 1% month over month. The motor vehicle sector played a major role in this recovery, highlighting consumer demand’s resilience.
• July saw declines in both permits and starts in residential construction. However, a strong permitting rate suggests potential future growth, yet challenges remain in the housing market.

Headline Inflation and Core CPI

The July CPI report affirmed continued declines in year-over-year inflation to the lowest level since March 2021. Shelter drove 90% of the July monthly increase, and without shelter, inflation is under the Fed’s target. Furthermore, shelter is not going to improve with rates in restrictive territory as new construction has fallen in response to the high rates, yet we have a persistent lack of supply that needs years of higher production.

• July saw a 0.2% increase in both headline inflation and the core consumer price index (CPI), as anticipated.
• A significant monthly gain was driven by housing, seeing a rise to 0.4%, a jump from the previous 0.1%.
• Transportation was again disinflationary at -1.3%, despite a slight increase in motor fuel, as new and used vehicle prices and airline fares continued declining.
• New vehicles recorded a 0.2% decline in prices, while used cars saw a whopping 2.5% decline. We observed new vehicle prices not changing in July, but incentives increased. We saw divergent trends in used car prices in July as wholesale prices increased but retail prices fell.
• The overall year-over-year CPI declined to 2.9%, marking its lowest point since March 2021.

Positive Retail Sales Report

Retail sales saw a strong 1% monthly gain in July, driven by a recovery in auto sales and service that was artificially restricted by software outages in June. Ignoring auto sales, retail sales were up 0.4%. Adjusted for inflation, retail sales, including auto sales, were down 0.1% year over year.

• July’s initial retail sales displayed a robust 1% monthly gain in consumer spending, following abnormal conditions in June that caused a decline in sales driven by the auto market.
• The auto sector outperformed the rest of the retail market as sales excluding motor vehicles and parts increased 0.4% while sales of motor vehicles and parts jumped 3.6%, following a decline of 3.4% in June.
• Category-level performance was mostly positive, as nine of the twelve major categories saw sales increases for the month. The auto market and furniture, home furnishing, electronics, and appliance stores (+1.0%) had the largest gains.
• Retail sales increased 2.7% year over year, a rise from June’s 2.0% year-over-year increase.

Decrease in Residential Construction Trends

New construction trends were negative and worse than expected in July. Starts should improve in future months as the permitting level exceeds the starts level in single and multifamily.

• Residential construction trends were negative in July as both permits and starts declined and were worse than expected.
• Permits decreased by 4.0%, and the seasonally adjusted annualized rate of starts declined by 6.8%, both higher than forecasted.
• However, the permitting pace at 1.396 million units was ahead of the 1.238 million starts pace, suggesting a potential rise in starts in the coming months.

Consumer Sentiment Shows Slight Improvement

Measures of consumer sentiment for August show mixed yet little-changed trends. Consumers’ views of buying conditions for vehicles improved slightly but remained at very low levels. Consumers’ views of vehicle prices and interest rates remain very negative.

• The initial August reading from the University of Michigan indicated a modest 2.1% rise in Consumer Sentiment to 67.8, mildly better than anticipated. Despite minor improvements, overall sentiment remained low and was down 2.3% year over year.
• The daily index of consumer sentiment from Morning Consult is unchanged in mid-August though sentiment has been somewhat volatile. The index increased 2.9% in July and was up 4.0% against last year as of Aug. 15 and is up 1.1% year to date.
• The average unleaded gas price, according to AAA, has decreased 1.4% month to date to $3.43 per gallon as of Aug. 15. Gas prices are down 11% year over year but up 10% year to date.

Jonathan Smoke

Chief Economist

Jonathan Smoke leads Cox Automotive’s economic and industry insights team, which tracks key metrics and trends impacting both the wholesale and retail markets for vehicles informed by the proprietary data from the company’s businesses and platforms. For 28 years, Smoke has focused on translating data and trends into relevant actionable insights for the industries that represent the biggest purchases that consumers make in their lifetimes: real estate and automotive. Smoke joined Cox Automotive in 2017.