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Cox Automotive Dealer Sentiment Index: Strong U.S. Auto Market Performance Expected in Q2

Cox Automotive Dealer Sentiment Index: Strong U.S. Auto Market Performance Expected in Q2
PR Newswire
ATLANTA, March 9, 2023

The 3-month, forward-looking market outlook index rose sharply in the first quarter, indicating more dealers expect the Q2 …

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Cox Automotive Dealer Sentiment Index: Strong U.S. Auto Market Performance Expected in Q2

PR Newswire

ATLANTA, March 9, 2023

  • The 3-month, forward-looking market outlook index rose sharply in the first quarter, indicating more dealers expect the Q2 market to be strong as opposed to weak.
  • The cost index – specifically the cost of running a dealership – climbed 3 points quarter over quarter to 75 in Q1 2023, only 1 point below the record high recorded in Q2 2022.
  • Interest Rates ranked as the top factor holding back business, jumping ahead of Economy. Limited Inventory falls to the third position.

ATLANTA, March 9, 2023 /PRNewswire/ -- U.S. automobile dealer sentiment in the first quarter of 2023 was little changed from the level recorded in Q4 2022 and remains at the lowest level since the height of the global COVID-19 pandemic, according to the Cox Automotive Dealer Sentiment Index (CADSI). At 43, the current market index is below the threshold of 50, indicating more dealers view the current auto market as weak. The index remained stable quarter over quarter and down 14 points year over year.

In spite of factors holding back their business, a majority of U.S. dealers view the Q2 auto market as strong.. 

On a positive note, the 3-month, forward-looking market outlook index rose sharply in the first quarter to 52, up from 41 in Q4 2022. In spite of factors holding back their business, a majority of dealers view the Q2 auto market as strong. The increase in Q1 breaks a trend of three consecutive quarters with a declining market outlook. However, even with the improvement in Q1, the market outlook remains below last year's Q1 score of 64, when dealers were entering 2022 with a stronger sense of optimism.

"Despite high interest rates and stubborn inflation, the U.S. consumer continues to prop up the economy," said Cox Automotive Chief Economist Jonathan Smoke. "Auto sales are slow by historical standards, but the sales pace has been improving in early 2023, giving dealers reason to feel somewhat optimistic about the year ahead."

Profits Remain Under Pressure, Costs Rise to Near Record High

The overall profit index declined to 42, down from 44 last quarter and down significantly from 54 a year earlier. The profit index reached record highs in late 2021 and in the early part of 2022 – particularly for franchised dealers – but has declined for six straight quarters. While the profit index is now well below the threshold of 50, it continues to be propped up by franchised dealers who believe profits remain particularly strong at 63. Independent dealers, conversely, now see profits as weak, with an index score of only 36.

"For franchised dealers selling new vehicles at or above MSRP, the profit picture continues to be very strong," added Smoke. "The profit index for franchised dealers is down from the records seen in 2021 but still healthy and well above the long-term, pre-pandemic level. Unfortunately, for independent dealers, it's a different story altogether."

In Q1 2023, the cost index – specifically the cost of running a dealership – climbed 3 points quarter over quarter to 75; it is now 1 point below the record high recorded in Q2 2022. After reaching a record low of 51 at the height of the pandemic, the cost index has steadily increased.

Inventory Continues to Improve; Used-Vehicle Sales Still a Challenge

The new-vehicle inventory index improved in the first quarter and is up significantly from one year ago. The index was at 25 in the first quarter of last year. Now at 63, the new-vehicle inventory index indicates more franchised dealers feel their inventory is growing, not declining. Importantly, the sentiment index is currently at or above pre-pandemic levels.

The new-vehicle inventory mix index has also been increasing, up from 41 in Q4 to the threshold of 50 in Q1 2023, indicating dealers are generally neutral on their view of the current mix, with half indicating it is good and half indicating it is poor. In Q1 2020, before the start of the pandemic, the new-vehicle inventory mix index was 73. Overall, both new-vehicle inventory indexes continue to improve notably as supply chain issues are sorted and manufacturers have ramped up production.

The used-vehicle inventory index also improved in Q1 2023 to 43, 1 point higher than the previous quarter and up 7 points year over year. Unlike new inventory, franchised dealers indicate their used-vehicle inventory was declining in Q1. Among franchised dealers, the used-vehicle inventory level index improved by 4 points year over year to 49, just missing the threshold of 50. The index for independent dealers saw a 7-point gain year over year to 40.

The used-vehicle inventory mix index improved quarter over quarter and year over year to 52, marking the first time the index score was above the threshold of 50 since Q1 2021. Overall, franchised dealers continue to be far more positive about inventory than independent dealers. However, consistent with last quarter, Limited Inventory ranks as one of the top factors holding back business for dealers in Q1.

With new-vehicle inventory sentiment improving, the view of new-vehicle sales improved as well, increasing from 52 to a healthy 57, indicating more dealers see the new-vehicle sales environment as good. One year ago, the index score was 50. The new-vehicle incentives index dropped by 2 points quarter over quarter to 23 and has remained relatively stable since Q3 2021. The index reading indicates dealers view OEM incentives as small instead of large. For comparison, the incentive index was at 49 in Q1 2021.

In contrast to new-vehicle sales, which are viewed as good, most U.S. dealers view used-vehicle sales as poor. The overall used-vehicle sales index increased only 1 point quarter over quarter to 43, down significantly from Q1 2022 when the index score was 52. For franchised dealers, the used-vehicle sales index increased 1 point to 55 in Q1 but is down 9 points from year-ago levels. For independent dealers, the index rose 2 points from the previous quarter to 40 but is down 8 points from a year ago.

Majority of Dealers Feeling Pressure to Lower Prices

The important price pressure index increased in Q1 to 60, up from 57 in Q4, the fifth consecutive quarterly increase. At the current reading of 60, the price pressure index indicates a majority of dealers are feeling pressure to lower prices. Interestingly, the pressure to lower prices is being felt equally among franchised and independent dealers with scores of 59 and 60, respectively. The index is significantly higher than a year ago when it was 37 but remains below pre-pandemic levels when it averaged 64.

High Interest Rates and a Declining Economy Darken Market Outlook

Overall, Interest Rates are now the top factor holding back dealer business in the U.S., with 55% noting it as their primary concern, according to the Q1 2023 CADSI. Economy (54%), Limited Inventory (43%), Market Conditions (42%) and Expenses (29%) round out the top five factors holding back business.

Cox Automotive Dealer Sentiment Index Methodology

The Q1 2023 CADSI is based on 1,022 U.S. auto dealer respondents, comprising 571 franchised dealers and 451 independents. The survey was conducted from January 30 to February 13, 2023. Dealer responses were weighted by dealership type and sales volume to represent the national dealer population. For each aspect of the market surveyed, respondents are given an option related to strong/increasing, average/stable, or weak/decreasing, along with a "don't know" opt-out. Indices are calculated by creating a mean score in which:

  • Strong/increasing answers are assigned a value of 100.
  • Average/stable answers are assigned a value of 50.
  • Weak/declining selections are assigned a value of 0.

Respondents who select "don't know" at a particular question are removed from the related index calculation. The total metrics reported have a +/- 3.0 percent margin of error.

Download the full results of the Q1 2023 Cox Automotive Dealer Sentiment Index.

About Cox Automotive

Cox Automotive is the world's largest automotive services and technology provider. Fueled by the largest breadth of first-party data fed by 2.3 billion online interactions a year, Cox Automotive tailors leading solutions for car shoppers, automakers, dealers, retailers, lenders and fleet owners. The company has 25,000+ employees on five continents and a family of trusted brands that includes Autotrader®, Dealertrack®, Kelley Blue Book®, Manheim®, NextGear Capital™ and vAuto®. Cox Automotive is a subsidiary of Cox Enterprises Inc., a privately-owned, Atlanta-based company with $22 billion in annual revenue. Visit coxautoinc.com or connect via @CoxAutomotive on Twitter, CoxAutoInc on Facebook or Cox-Automotive-Inc on LinkedIn. 

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NY Fed Finds Medium, Long-Term Inflation Expectations Jump Amid Surge In Stock Market Optimism

NY Fed Finds Medium, Long-Term Inflation Expectations Jump Amid Surge In Stock Market Optimism

One month after the inflation outlook tracked…

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4 hours ago

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March 11, 2024

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NY Fed Finds Medium, Long-Term Inflation Expectations Jump Amid Surge In Stock Market Optimism

One month after the inflation outlook tracked by the NY Fed Consumer Survey extended their late 2023 slide, with 3Y inflation expectations in January sliding to a record low 2.4% (from 2.6% in December), even as 1 and 5Y inflation forecasts remained flat, moments ago the NY Fed reported that in February there was a sharp rebound in longer-term inflation expectations, rising to 2.7% from 2.4% at the three-year ahead horizon, and jumping to 2.9% from 2.5% at the five-year ahead horizon, while the 1Y inflation outlook was flat for the 3rd month in a row, stuck at 3.0%. 

The increases in both the three-year ahead and five-year ahead measures were most pronounced for respondents with at most high school degrees (in other words, the "really smart folks" are expecting deflation soon). The survey’s measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) decreased at all horizons, while the median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—declined at the one- and three-year ahead horizons and remained unchanged at the five-year ahead horizon.

Going down the survey, we find that the median year-ahead expected price changes increased by 0.1 percentage point to 4.3% for gas; decreased by 1.8 percentage points to 6.8% for the cost of medical care (its lowest reading since September 2020); decreased by 0.1 percentage point to 5.8% for the cost of a college education; and surprisingly decreased by 0.3 percentage point for rent to 6.1% (its lowest reading since December 2020), and remained flat for food at 4.9%.

We find the rent expectations surprising because it is happening just asking rents are rising across the country.

At the same time as consumers erroneously saw sharply lower rents, median home price growth expectations remained unchanged for the fifth consecutive month at 3.0%.

Turning to the labor market, the survey found that the average perceived likelihood of voluntary and involuntary job separations increased, while the perceived likelihood of finding a job (in the event of a job loss) declined. "The mean probability of leaving one’s job voluntarily in the next 12 months also increased, by 1.8 percentage points to 19.5%."

Mean unemployment expectations - or the mean probability that the U.S. unemployment rate will be higher one year from now - decreased by 1.1 percentage points to 36.1%, the lowest reading since February 2022. Additionally, the median one-year-ahead expected earnings growth was unchanged at 2.8%, remaining slightly below its 12-month trailing average of 2.9%.

Turning to household finance, we find the following:

  • The median expected growth in household income remained unchanged at 3.1%. The series has been moving within a narrow range of 2.9% to 3.3% since January 2023, and remains above the February 2020 pre-pandemic level of 2.7%.
  • Median household spending growth expectations increased by 0.2 percentage point to 5.2%. The increase was driven by respondents with a high school degree or less.
  • Median year-ahead expected growth in government debt increased to 9.3% from 8.9%.
  • The mean perceived probability that the average interest rate on saving accounts will be higher in 12 months increased by 0.6 percentage point to 26.1%, remaining below its 12-month trailing average of 30%.
  • Perceptions about households’ current financial situations deteriorated somewhat with fewer respondents reporting being better off than a year ago. Year-ahead expectations also deteriorated marginally with a smaller share of respondents expecting to be better off and a slightly larger share of respondents expecting to be worse off a year from now.
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now increased by 1.4 percentage point to 38.9%.
  • At the same time, perceptions and expectations about credit access turned less optimistic: "Perceptions of credit access compared to a year ago deteriorated with a larger share of respondents reporting tighter conditions and a smaller share reporting looser conditions compared to a year ago."

Also, a smaller percentage of consumers, 11.45% vs 12.14% in prior month, expect to not be able to make minimum debt payment over the next three months

Last, and perhaps most humorous, is the now traditional cognitive dissonance one observes with these polls, because at a time when long-term inflation expectations jumped, which clearly suggests that financial conditions will need to be tightened, the number of respondents expecting higher stock prices one year from today jumped to the highest since November 2021... which incidentally is just when the market topped out during the last cycle before suffering a painful bear market.

Tyler Durden Mon, 03/11/2024 - 12:40

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Homes listed for sale in early June sell for $7,700 more

New Zillow research suggests the spring home shopping season may see a second wave this summer if mortgage rates fall
The post Homes listed for sale in…

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March 11, 2024

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  • A Zillow analysis of 2023 home sales finds homes listed in the first two weeks of June sold for 2.3% more. 
  • The best time to list a home for sale is a month later than it was in 2019, likely driven by mortgage rates.
  • The best time to list can be as early as the second half of February in San Francisco, and as late as the first half of July in New York and Philadelphia. 

Spring home sellers looking to maximize their sale price may want to wait it out and list their home for sale in the first half of June. A new Zillow® analysis of 2023 sales found that homes listed in the first two weeks of June sold for 2.3% more, a $7,700 boost on a typical U.S. home.  

The best time to list consistently had been early May in the years leading up to the pandemic. The shift to June suggests mortgage rates are strongly influencing demand on top of the usual seasonality that brings buyers to the market in the spring. This home-shopping season is poised to follow a similar pattern as that in 2023, with the potential for a second wave if the Federal Reserve lowers interest rates midyear or later. 

The 2.3% sale price premium registered last June followed the first spring in more than 15 years with mortgage rates over 6% on a 30-year fixed-rate loan. The high rates put home buyers on the back foot, and as rates continued upward through May, they were still reassessing and less likely to bid boldly. In June, however, rates pulled back a little from 6.79% to 6.67%, which likely presented an opportunity for determined buyers heading into summer. More buyers understood their market position and could afford to transact, boosting competition and sale prices.

The old logic was that sellers could earn a premium by listing in late spring, when search activity hit its peak. Now, with persistently low inventory, mortgage rate fluctuations make their own seasonality. First-time home buyers who are on the edge of qualifying for a home loan may dip in and out of the market, depending on what’s happening with rates. It is almost certain the Federal Reserve will push back any interest-rate cuts to mid-2024 at the earliest. If mortgage rates follow, that could bring another surge of buyers later this year.

Mortgage rates have been impacting affordability and sale prices since they began rising rapidly two years ago. In 2022, sellers nationwide saw the highest sale premium when they listed their home in late March, right before rates barreled past 5% and continued climbing. 

Zillow’s research finds the best time to list can vary widely by metropolitan area. In 2023, it was as early as the second half of February in San Francisco, and as late as the first half of July in New York. Thirty of the top 35 largest metro areas saw for-sale listings command the highest sale prices between May and early July last year. 

Zillow also found a wide range in the sale price premiums associated with homes listed during those peak periods. At the hottest time of the year in San Jose, homes sold for 5.5% more, a $88,000 boost on a typical home. Meanwhile, homes in San Antonio sold for 1.9% more during that same time period.  

 

Metropolitan Area Best Time to List Price Premium Dollar Boost
United States First half of June 2.3% $7,700
New York, NY First half of July 2.4% $15,500
Los Angeles, CA First half of May 4.1% $39,300
Chicago, IL First half of June 2.8% $8,800
Dallas, TX First half of June 2.5% $9,200
Houston, TX Second half of April 2.0% $6,200
Washington, DC Second half of June 2.2% $12,700
Philadelphia, PA First half of July 2.4% $8,200
Miami, FL First half of June 2.3% $12,900
Atlanta, GA Second half of June 2.3% $8,700
Boston, MA Second half of May 3.5% $23,600
Phoenix, AZ First half of June 3.2% $14,700
San Francisco, CA Second half of February 4.2% $50,300
Riverside, CA First half of May 2.7% $15,600
Detroit, MI First half of July 3.3% $7,900
Seattle, WA First half of June 4.3% $31,500
Minneapolis, MN Second half of May 3.7% $13,400
San Diego, CA Second half of April 3.1% $29,600
Tampa, FL Second half of June 2.1% $8,000
Denver, CO Second half of May 2.9% $16,900
Baltimore, MD First half of July 2.2% $8,200
St. Louis, MO First half of June 2.9% $7,000
Orlando, FL First half of June 2.2% $8,700
Charlotte, NC Second half of May 3.0% $11,000
San Antonio, TX First half of June 1.9% $5,400
Portland, OR Second half of April 2.6% $14,300
Sacramento, CA First half of June 3.2% $17,900
Pittsburgh, PA Second half of June 2.3% $4,700
Cincinnati, OH Second half of April 2.7% $7,500
Austin, TX Second half of May 2.8% $12,600
Las Vegas, NV First half of June 3.4% $14,600
Kansas City, MO Second half of May 2.5% $7,300
Columbus, OH Second half of June 3.3% $10,400
Indianapolis, IN First half of July 3.0% $8,100
Cleveland, OH First half of July  3.4% $7,400
San Jose, CA First half of June 5.5% $88,400

 

The post Homes listed for sale in early June sell for $7,700 more appeared first on Zillow Research.

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

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March 9, 2024

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By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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