Auto ECON Updates

Auto ECON Updates (10)

Real gross domestic product (GDP) decreased at an annual rate of 0.9 percent in the second quarter of 2022, according to the advance estimate released by the Bureau of Economic Analysis.

In the first quarter, real GDP decreased 1.6 percent.

The GDP estimate released July 28 is based on source data that are incomplete or subject to further revision by the source. The second estimate for the second quarter, based on more complete data, will be released on Aug. 25, 2022.

The decrease in real GDP reflected decreases in private inventory investment, residential fixed investment, federal government spending, state and local government spending, and nonresidential fixed investment that were partly offset by increases in exports and personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, increased.

The decrease in private inventory investment was led by a decrease in retail trade (mainly general merchandise stores as well as motor vehicle dealers). The decrease in residential fixed investment was led by a decrease in “other” structures (specifically brokers’ commissions).

The decrease in federal government spending reflected a decrease in nondefense spending that was partly offset by an increase in defense spending. The decrease in nondefense spending reflected the sale of crude oil from the Strategic Petroleum Reserve, which results in a corresponding decrease in consumption expenditures. Because the oil sold by the government enters private inventories, there is no direct net effect on GDP. The decrease in state and local government spending was led by a decrease in investment in structures. The decrease in nonresidential fixed investment reflected decreases in structures and equipment that were mostly offset by an increase in intellectual property products. The increase in imports reflected an increase in services (led by travel).

The Federal Reserve will raise interest rates again to battle inflation, and additional changes are on the horizon.

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run,” the statement read. “In support of these goals, the Committee decided to raise the target range for the federal funds rate to 2 1/4 to 2 1/2% and anticipates that ongoing increases in the target range will be appropriate.

In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2% objective.

The Conference Board Consumer Confidence Index decreased in July, following a larger decline in June. The Index now stands at 95.7 (1985=100), down 2.7 points from 98.4 in June. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—fell to 141.3 from 147.2 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—ticked down to 65.3 from 65.8.

“Consumer confidence fell for a third consecutive month in July,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The decrease was driven primarily by a decline in the Present Situation Index—a sign growth has slowed at the start of Q3. The Expectations Index held relatively steady, but remained well below a reading of 80, suggesting recession risks persist. Concerns about inflation—rising gas and food prices, in particular—continued to weigh on consumers.

“As the Fed raises interest rates to rein in inflation, purchasing intentions for cars, homes, and major appliances all pulled back further in July. Looking ahead, inflation and additional rate hikes are likely to continue posing strong headwinds for consumer spending and economic growth over the next six months.” 

Consumers’ appraisal of current business conditions was less favorable in July, with 17.0% of consumers reporting business conditions were “good,” down from 19.5%.

Twenty-four percent of consumers said business conditions were “bad,” up from 22.8%.

Consumers’ assessment of the labor market was less optimistic.

More than 50% of consumers said jobs were “plentiful,” down from 51.5% and 12.3% of consumers said jobs were “hard to get,” up from 11.6%.

Consumers were mixed about the short-term (six months forward) business conditions outlook in July and 14.0% of consumers expect business conditions will improve, down from 14.6%.

Conversely, 27.2% expect business conditions to worsen, down from 29.7%.

Consumers were also mixed about the short-term labor market outlook. Just over 15% of consumers expect more jobs to be available, down marginally from 15.9%.

Conversely, 21.4% anticipate fewer jobs, down from 22.2%.

Consumers were more pessimistic about their short-term financial prospects with 14.7% of consumers expecting their incomes to increase, down from 16.1%.

The survey shows 15.7% expect their incomes will decrease, up from 15.3%.

The monthly Consumer Confidence Survey, based on an online sample, is conducted for The Conference Board by Toluna, a technology company that delivers real-time consumer insights and market research through its innovative technology, expertise, and panel of over 36 million consumers. 

Automakers cut over 100,000 vehicles from North American production schedules because of the global microchip shortage last week, according to estimates from AutoForecast Solutions.

Japan is the only other country that lost production last week, losing 7,300 vehicles.

“Along with much of the industry ... Toyota and Stellantis are still looking for ways to handle this crisis,” said Sam Fiorani, AFS vice president of global vehicle forecasting. “Stellantis continues to show its losses in the past and has not properly anticipated how it will be affected going forward; but more losses will be reported in the second half of 2022.”

Toyota has acknowledged its issues and removed a considerable portion of its production volume in July, with more expected to follow.

Even with the production losses, Bosch has announced plans to invest over $3 billion in semiconductor production and other chipmaking activities, according to AFS.

S&P Dow Jones Indices and Experian released data through June 2022 for the S&P/Experian Consumer Credit Default Indices. The auto loan default rate was one basis point higher at 0.62% while the first mortgage default rate was up two basis points to 0.38%. The bank card default rate climbed six basis points to 2.55%.

The indices represent a comprehensive measure of changes in consumer credit defaults and show that the composite rate rose two basis points to 0.53%.

Four of the five major metropolitan statistical areas showed higher default rates compared to last month. Miami had the largest increase, up 15 basis points to 0.99%. Chicago and Dallas each rose five basis points, to 0.58% and 0.57% respectively. Los Angeles was one basis point higher at 0.46%. New York dropped six basis points to 0.71%.

Index Levels – National Indices

       

Index

June 2022

May 2022

June 2021

Composite

0.53

0.51

0.41

First Mortgage

0.38

0.36

0.26

Bank Card

2.55

2.49

2.83

Auto Loans

0.62

0.61

0.30

Source: S&P/Experian Consumer Credit Default Indices

Data through June 2022

The Producer Price Index for final demand increased 1.1 percent in June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported. This rise followed advances of 0.9 percent in May and 0.4 percent in April. On an unadjusted basis, final demand prices moved up 11.3 percent for the 12 months ended in June, the largest increase since a record 11.6-percent jump in March 2022.

In June, three-fourths of the advance in the index for final demand was due to a 2.4-percent rise in prices for final demand goods. The index for final demand services increased 0.4 percent.

Prices for final demand less foods, energy, and trade services moved up 0.3 percent in June after advancing 0.4 percent in both May and April. For the 12 months ended in June, the index for final demand less foods, energy, and trade services rose 6.4 percent.

The index for final demand goods moved up 2.4 percent in June, the sixth consecutive rise. Nearly 90 percent of the June increase can be traced to a 10.0-percent jump in prices for final demand energy. The indexes for final demand goods less foods and energy and for final demand foods advanced 0.5 percent and 0.1 percent, respectively.

Total nonfarm payroll employment rose by 372,000 in June, and the unemployment rate remained at 3.6%, the U.S. Bureau of Labor Statistics reported July 7.

Notable job gains occurred in professional and business services, leisure and hospitality, and health care.

The unemployment rate was 3.6 percent for the fourth month in a row, and the number of unemployed persons was essentially unchanged at 5.9 million in June. These measures are little different from their values in February 2020 (3.5 percent and 5.7 million, respectively), prior to the coronavirus (COVID-19) pandemic.

“Today, the Bureau of Labor Statistics reported that the American economy added 372,000 jobs in the month of June, and the unemployment rate remained at 3.6% for the fourth consecutive month,” said U.S. Secretary of Labor Marty Walsh.

 “Since President Biden took office America has added over nine million jobs, and the private sector economy has now more than fully recovered from its pandemic-era job losses – a major milestone that reflects both the success of the administration’s economic policies and the profound resilience of America’s businesses and workers.”

The household survey measures labor force status, including unemployment, by demographic characteristics.

The establishment survey measures nonfarm employment, hours, and earnings by industry.

Small businesses continued to add jobs in June and worker wages continued to grow at a strong rate, but the pace of growth moderated slightly from the previous month. The latest Paychex IHS Markit Employment Watch says the Small Business Jobs Index for June was 100.81, up 2.32 percent from over a year ago and -0.06 percent from the previous month. Average hourly earnings growth for the month stood at 5.10 percent, compared to 5.16 percent from May 2022.  

“The small business economy still is in recovery phase with continued job gains, and, surprisingly, moderating wage gains,” said James Diffley, chief regional economist at IHS Markit.

Martin Mucci, Paychex CEO, added that the pace of growth has slowed from May.

 “This month’s data also showed a slight decline in hourly earnings growth, the first decrease in 13 months,” Mucci said. “Despite this, growth remains strong, above five percent.”

In further detail, the June report showed:

  • At 100.81, the national jobs index is up 2.32 percent over a year ago.
  • Hourly earnings have increased $1.48 during the past year, now reaching $30.42.
  • The South continued as the top region for small business job growth, with Texas and Dallas leading among states and metros, respectively.
  • The South was also the top region for hourly earnings growth.
  • Ohio was the top state for hourly earnings growth, followed closely by Arizona and Florida.
  • Leisure and hospitality reported the strongest hourly earnings growth among industry sectors for the 16th consecutive month.
  • Hourly earnings growth in the Construction sector hit 5.00 percent and again posted a new record level since reporting began in 2011.

Service Advisor is designed to help car owners identify local auto repair shops and find fair prices for services rendered, according to Kelley Blue Book. Referencing data stemming from millions of services performed, Service Advisor answers key ownership questions like what services are needed and when to have them performed and most importantly, how much it should cost based on similar repairs in the area.

According to the Cox Automotive Monthly Repair Order Revenue Index, the cost of repairs is on the rise. Average revenue generated per repair order rose for the sixth consecutive month after levelling off in November 2021. At 126.8, the Repair Order Revenue Index for May 2022 was up 11.7% year-over-year and up 0.08% from April 2022.  (The index is benchmarked from January 2019 at a value of 100 to show comparison over time.)

Service Advisor also provides insight on common problems car owners face and a Q&A forum where owners can ask service-related questions. Additionally, Service Advisor brings recalls to the forefront. Not only will consumers receive information on whether a vehicle has a recall, but they can also opt-in to real-time recall alerts with a list of local dealers who can repair the issue.

Figures dropped more than 14% from May and over 40% from a year ago in a recent University of Michigan Consumer Sentiment Index.

“The final June reading confirmed the early-June decline in consumer sentiment, settling 0.2 Index points below the preliminary reading…. with the lowest reading on record,” stated Joanne Hsu, Surveys of Consumers director. “Consumers across income, age, education, geographic region, political affiliation, stockholding and homeownership status all posted large declines.

“About 79% of consumers expected bad times in the year ahead for business conditions, the highest since 2009. Inflation continued to be of paramount concern to consumers; 47% of consumers blamed inflation for eroding their living standards, just one point shy of the all-time high last reached during the Great Recession.”

Hsu also reported, “Consumers also expressed the highest level of uncertainty over long-run inflation since 1991, continuing a sharp increase that began in 2021.”