Auto Market Weekly Summary
This week’s summary highlights the disconnect between robust economic activity and consumer pressures stemming from high financing costs, rising fuel prices, and fluctuating vehicle valuations. As we enter the final quarter of the year, we delve into the implications of weakening consumer confidence, slowing job growth, and evolving spending behaviors for consumers, dealers, and the auto market.
Bottom Line Up Front
- The economic landscape is complex, with interest rates showing volatility. While they eased midweek, they rose again by Friday, keeping mortgage rates high and auto loan rates climbing.
- Diesel prices are near historic highs, impacting wholesale valuations at Manheim and driving up overall consumer expenses.
- Consumers are prioritizing fuel-efficient vehicles, leading to a decline in large truck and SUV values, while vehicles with high mpg ratings are maintaining or gaining value.
This situation raises the question of how long consumer spending can outpace income growth, which has been largely supported by rising financial asset values instead of wage increases.
Jobs and Unemployment
- Positive job growth continues but remains volatile, with downward revisions leading to a three-month average of 51,000 jobs added in September.
- Key Takeaways:
- Nonfarm payrolls rose by 29,000 in September, below expectations of 90,000.
- Revisions reduced overall job growth in July and August by 60,000.
- Unemployment rate increased to 4.2%, although still lower than a year ago.
- Average hourly earnings grew by only 0.1% month-over-month, not keeping pace with inflation.
Personal Income, Inflation, and Spending
- The gap between consumer spending and income is increasingly concerning as the personal savings rate dropped from 6.8% to 3%.
- The wealth of financial assets is heavily concentrated among the top 10%, who own 82% of total financial assets.
- Forced savings have emerged as money market funds have surged by 197% since the pandemic, particularly benefiting lower-income consumers.
- Despite rising interest rates being painful for borrowers, they have provided savers with higher returns, creating a dichotomy in financial wellness.
Consumer Confidence
- Consumer confidence hit its lowest level since 2014, primarily due to rising fuel costs and interest rate hikes.
- Findings:
- The Consumer Confidence Index dropped to 81.9, much lower than the forecast of 89.2.
- The Present Situation Index fell to 109.3, signaling negative views on current business conditions.
- Expectations also declined, remaining below levels that typically indicate an impending recession.
GDP Insights
- Real GDP growth estimates were revised upward, suggesting stronger performance in the first half of 2026.
- Notable Points:
- GDP grew at a 2.2% annualized rate for Q2, surpassing earlier forecasts.
- Consumer spending significantly contributed to GDP growth, further strengthened by AI-related investments.
As we navigate these economic complexities, it’s crucial to monitor the intertwining factors influencing the auto market and consumer behavior. Rising financing costs, energy prices, and changes in consumer preferences will shape the trajectory heading into the year-end.
