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Cox Automotive Dealer Sentiment Index: U.S. Auto Dealers See Market Weakness in Q4, Driven by the Economy and High Interest Rates; Market Outlook Lowest in Survey History

Cox Automotive Dealer Sentiment Index: U.S. Auto Dealers See Market Weakness in Q4, Driven by the Economy and High Interest Rates; Market Outlook Lowest in Survey History
PR Newswire
ATLANTA, Dec. 7, 2022

The 3-month, forward-looking market outlook…

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Cox Automotive Dealer Sentiment Index: U.S. Auto Dealers See Market Weakness in Q4, Driven by the Economy and High Interest Rates; Market Outlook Lowest in Survey History

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  • The 3-month, forward-looking market outlook dropped to a record low, indicating dealers expect a difficult market in months ahead.

  • The economy and interest rates are the top two factors holding back business, putting profits under pressure while costs remain high; meanwhile, limited inventory dropped to third place.

  • Franchised dealers are more pessimistic this quarter about used-vehicle sales but still view the market as good, while independent dealers view the used-vehicle sales environment as poor.

ATLANTA, Dec. 7, 2022 /PRNewswire/ -- U.S. automobile dealer sentiment in the fourth quarter of 2022 dropped to the lowest level since the start of the 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 that more dealers view the current auto market as weak than strong. The index is down 6 points quarter over quarter, down 17 points year over year, and well below the pre-pandemic average of 48.

Cox Automotive Dealer Sentiment Index: 3-month, forward-looking market outlook drops to a record low in Q4 report.

The current market index peaked at 67 in Q2 2021 and has been losing momentum every quarter since. U.S. auto dealers indicate that their negative view of the market is influenced by the economy, higher interest rates and low inventory.

"High interest rates and a generally slowing economy are clearly weighing heavily on U.S. auto dealers right now," said Jonathan Smoke, Cox Automotive Chief Economist. "Dealers are normally optimistic, so the drop in the 3-month outlook to a new low in our survey history is particularly noteworthy. As the year began, dealers were telling us about one obvious problem: Inventory. Now, as 2022 comes to a close, it's all about the economy and interest rates."

The 3-month, forward-looking market outlook index dropped from the previous quarter and, at 41, is now at a record low and well below the 64 at the start of the year, in Q1 2022. Additionally, the economy index decreased for the second consecutive quarter to 43 in Q4, down from 45 in the prior quarter and below the positive threshold, indicating a majority of U.S. auto dealers feel the economy is weak.

Profits Under Pressure, Costs Remain High

The overall profit index saw a decline to 44, down from 50 last quarter and down significantly from 57 a year ago. However, the profit index remains higher than the average recorded in the three years prior to the COVID-19 pandemic, which was 41. The profit index continues to be driven by franchised dealers, who believe profits remain particularly strong, at 67. Independent dealers, conversely, now see profits as weak, with an index score of only 37.

In Q4 2022, the cost index – specifically the cost of running a dealership – dipped 3 points quarter over quarter to 72 and decreased 4 points from the record high level in Q2 2022. After reaching a record low in Q2 2020 of 51 at the height of the pandemic, the cost index has been steadily increasing. Overall inflation in the U.S. economy is clearly contributing to this view. The Economy is the leading concern right now, with 62% of dealers citing it as a factor holding back business, up from 53% in Q3, with Interest Rates (49%), Limited Inventory (47%), Market Conditions (46%) and Political Climate (33%) rounding out the top five.

Inventory Is Noticeably Improving, Sales Are Not

While still historically low, the new-vehicle inventory index improved for franchised dealers in the fourth quarter and is up significantly from one year ago. The index was at 14 in the fourth quarter last year, after hitting an all-time low of 13 in the prior quarter. Now at 53, the new-vehicle inventory index indicates more dealers feel their inventory is growing, not declining. Importantly, the index is above the 50 threshold for the first time since the onset of the pandemic.

The new-vehicle inventory mix index has been increasing for a year as well, but remains historically low at 41, indicating that the new-vehicle inventory mix is poor. In Q4 2019, the new-vehicle inventory mix index was 73. Overall, both new-vehicle inventory indexes continue to improve from their nadir one year ago, when inventory levels hit all-time lows at dealerships across the country.

The used-vehicle inventory index increased as well in Q4 2022 to 42, 6 points higher than the previous quarter and up 13 points year over year. Among franchised dealers, the used-vehicle inventory index improved by 14 points year over year in Q4 to reach the threshold of 50. The index for independent dealers saw a 7-point gain to 39. The used-vehicle inventory mix index slightly improved quarter over quarter and year over year at 49. Overall, franchised dealers continue to be far more positive about inventory compared to independent dealers, but, consistent with last quarter, Limited Inventory ranks as one of the top three factors holding back business for dealers in Q4.

While new-vehicle inventory sentiment improved significantly in Q4, the view of new-vehicle sales improved only slightly, increasing from 51 to 52, meaning dealers remain marginally more optimistic about the current new-vehicle sales environment. One year ago, the index score was 45, meaning that more dealers saw the market as poor versus good. The new-vehicle incentives index rose by 3 points quarter over quarter to 25 and has remained relatively stable since Q3 2021. The index reading indicates dealers view OEM incentives as small as opposed to large. For comparison, the incentive index was at 49 in Q4 2019.

On the other hand, the used-vehicle sales index declined to 42. For franchised dealers, the used-vehicle sales index decreased by 8 points to 54 in Q4 and is now 16 points below year-ago levels. For independent dealers, the index fell 3 points from the previous quarter to 38 and is down 10 points from a year ago. Overall, most dealers view used-vehicle sales as poor.

High Interest Rates and a Declining Economy Darken Market Outlook

Notably, the market outlook for the next three months decreased to an all-time low of 41 in Q4 2022, down from 44 in Q3 and 60 one year ago. The lower score indicates that more dealers feel that the outlook for the next three months is weak, not strong. In fact, the Q4 market outlook index is significantly lower for both franchised and independent dealers year over year and 4 points below the index score from Q2 2020, at the height of the global COVID-19 pandemic.

The quarter-over-quarter decrease in market outlook, however, was driven more by franchised dealers, with an 11-point drop to 48. Independent dealers' already-gloomy outlook dropped another point quarter over quarter to 39, a year-over-year decrease of 18 points.

Overall, the Economy is now the top factor holding back business, according to the Q4 2022 CADSI. The factors saw major changes from last quarter, with the top five shifting more toward economic and financial factors. In fact, in Q4 2022, Interest Rates jumped to the 2nd position in the list. Limited Inventory was in the 3rd position, but its score dropped 9 points quarter over quarter from 56% to 47%, a sign that inventory is improving but still a concern. Market Conditions and Political Climate rounded out the top five.

Cox Automotive Dealer Sentiment Index Methodology

The Q4 2022 CADSI is based on 1,034 U.S. auto dealer respondents, comprising 604 franchised dealers and 430 independents. The survey was conducted from October 25 to November 7, 2022. 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 Q4 2022 Cox Automotive Dealer Sentiment Index.

About Cox Automotive

Cox Automotive Inc. makes buying, selling, owning and using vehicles easier for everyone. The global company's more than 27,000 team members and family of brands, including Autotrader®, Dealer.com®, Dealertrack®, Kelley Blue Book®, Manheim®, NextGear Capital®, VinSolutions®, vAuto® and Xtime®, are passionate about helping millions of car shoppers, 40,000 auto dealer clients across five continents and many others throughout the automotive industry thrive for generations to come. Cox Automotive is a subsidiary of Cox Enterprises Inc., a privately-owned, Atlanta-based company with annual revenues of nearly $20 billion. www.coxautoinc.com

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SOURCE Cox Automotive

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Schedule for Week of January 29, 2023

The key reports scheduled for this week are the January employment report and November Case-Shiller house prices.Other key indicators include January ISM manufacturing and services surveys, and January vehicle sales.The FOMC meets this week, and the FO…

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The key reports scheduled for this week are the January employment report and November Case-Shiller house prices.

Other key indicators include January ISM manufacturing and services surveys, and January vehicle sales.

The FOMC meets this week, and the FOMC is expected to announce a 25 bp hike in the Fed Funds rate.

----- Monday, January 30th -----

10:30 AM: Dallas Fed Survey of Manufacturing Activity for January. This is the last of the regional Fed manufacturing surveys for January.

----- Tuesday, January 31st -----

9:00 AM: FHFA House Price Index for November. This was originally a GSE only repeat sales, however there is also an expanded index.

9:00 AM ET: S&P/Case-Shiller House Price Index for November.

This graph shows the Year over year change in the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the most recent report (the Composite 20 was started in January 2000).

The consensus is for a 6.9% year-over-year increase in the Comp 20 index.

9:45 AM: Chicago Purchasing Managers Index for January. The consensus is for a reading of 44.9, down from 45.1 in December.

10:00 AM: The Q4 Housing Vacancies and Homeownership report from the Census Bureau.

----- Wednesday, February 1st -----

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:15 AM: The ADP Employment Report for January. This report is for private payrolls only (no government). The consensus is for 170,000 payroll jobs added in January, down from 235,000 added in December.

10:00 AM: Construction Spending for December. The consensus is for a 0.1% decrease in construction spending.

Job Openings and Labor Turnover Survey10:00 AM ET: Job Openings and Labor Turnover Survey for December from the BLS.

This graph shows job openings (black line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Job openings decreased in November to 10.458 million from 10.512 million in October

10:00 AM: ISM Manufacturing Index for January. The consensus is for the ISM to be at 48.0, down from 48.4 in December.

2:00 PM: FOMC Meeting Announcement. The FOMC is expected to announce a 25 bp hike in the Fed Funds rate.

2:30 PM: Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.

Vehicle SalesAll day: Light vehicle sales for January. The consensus is for light vehicle sales to be 14.3 million SAAR in January, up from 13.3 million in December (Seasonally Adjusted Annual Rate).

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the December sales rate.

----- Thursday, February 2nd -----

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 200 thousand initial claims, up from 186 thousand last week.
----- Friday, February 3rd -----

Employment Recessions, Scariest Job Chart8:30 AM: Employment Report for December.   The consensus is for 185,000 jobs added, and for the unemployment rate to increase to 3.6%.

There were 223,000 jobs added in December, and the unemployment rate was at 3.5%.

This graph shows the job losses from the start of the employment recession, in percentage terms.

The pandemic employment recession was by far the worst recession since WWII in percentage terms. However, as of August 2022, the total number of jobs had returned and are now 1.24 million above pre-pandemic levels.

10:00 AM: ISM Manufacturing Index for January. The consensus is for the ISM to be at 50.3, up from 49.6 in December.

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US gov’t $1.5T debt interest will be equal 3X Bitcoin market cap in 2023

The U.S. will pay over $1 trillion in debt interest next year, the equivalent of three or more Bitcoin market caps at current prices.

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The U.S. will pay over $1 trillion in debt interest next year, the equivalent of three or more Bitcoin market caps at current prices.

Commentators believe that Bitcoin (BTC) bulls do not need to wait long for the United States to start printing money again.

The latest analysis of U.S. macroeconomic data has led one market strategist to predict quantitative tightening (QT) ending to avoid a “catastrophic debt crisis.”

Analyst: Fed will have “no choice” with rate cuts

The U.S. Federal Reserve continues to remove liquidity from the financial system to fight inflation, reversing years of COVID-19-era money printing.

While interest rate hikes look set to continue declining in scope, some now believe that the Fed will soon have only one option — to halt the process altogether.

“Why the Fed will have no choice but to cut or risk a catastrophic debt crisis,” Sven Henrich, founder of NorthmanTrader, summarized on Jan. 27.

“Higher for longer is a fantasy not rooted in math reality.”

Henrich uploaded a chart showing interest payments on current U.S. government expenditure, now hurtling toward $1 trillion a year.

A dizzying number, the interest comes from U.S. government debt being over $31 trillion, with the Fed printing trillions of dollars since March 2020. Since then, interest payments have increased by 42%, Henrich noted.

The phenomenon has not gone unnoticed elsewhere in crypto circles. Popular Twitter account Wall Street Silver compared the interest payments as a portion of U.S. tax revenue.

“US paid $853 Billion in Interest for $31 Trillion Debt in 2022; More than Defense Budget in 2023. If the Fed keeps rates at these levels (or higher) we will be at $1.2 trillion to $1.5 trillion in interest paid on the debt,” it wrote.

“The US govt collects about $4.9 trillion in taxes.”
Interest rates on U.S. government debt chart (screenshot). Source: Wall Street Silver/ Twitter

Such a scenario might be music to the ears of those with significant Bitcoin exposure. Periods of “easy” liquidity have corresponded with increased appetite for risk assets across the mainstream investment world.

The Fed’s unwinding of that policy accompanied Bitcoin’s 2022 bear market, and a “pivot” in interest rate hikes is thus seen by many as the first sign of the “good” times returning.

Crypto pain before pleasure?

Not everyone, however, agrees that the impact on risk assets, including crypto, will be all-out positive prior to that.

Related: Bitcoin ‘so bullish’ at $23K as analyst reveals new BTC price metrics

As Cointelegraph reported, ex-BitMEX CEO Arthur Hayes believes that chaos will come first, tanking Bitcoin and altcoins to new lows before any sort of long-term renaissance kicks in.

If the Fed faces a complete lack of options to avoid a meltdown, Hayes believes that the damage will have already been done before QT gives way to quantitative easing.

“This scenario is less ideal because it would mean that everyone who is buying risky assets now would be in store for massive drawdowns in performance. 2023 could be just as bad as 2022 until the Fed pivots,” he wrote in a blog post this month.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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Stay Ahead of GDP: 3 Charts to Become a Smarter Trader

When concerns of a recession are front and center, investors tend to pay more attention to the Gross Domestic Product (GDP) report. The Q4 2022 GDP report…

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When concerns of a recession are front and center, investors tend to pay more attention to the Gross Domestic Product (GDP) report. The Q4 2022 GDP report showed the U.S. economy grew by 2.9% in the quarter, and Wall Street wasn't disappointed. The day the report was released, the market closed higher, with the Dow Jones Industrial Average ($DJIA) up 0.61%, the S&P 500 index ($SPX) up 1.1%, and the Nasdaq Composite ($COMPQ) up 1.76%. Consumer Discretionary, Technology, and Energy were the top-performing S&P sectors.

Add to the GDP report strong earnings from Tesla, Inc. (TSLA) and a mega announcement from Chevron Corp. (CVX)—raising dividends and a $75 billion buyback round—and you get a strong day in the stock markets.

Why is the GDP Report Important?

If a country's GDP is growing faster than expected, it could be a positive indication of economic strength. It means that consumer spending, business investment, and exports, among other factors, are going strong. But the GDP is just one indicator, and one indicator doesn't necessarily tell the whole story. It's a good idea to look at other indicators, such as the unemployment rate, inflation, and consumer sentiment, before making a conclusion.

Inflation appears to be cooling, but the labor market continues to be strong. The Fed has stated in many of its previous meetings that it'll be closely watching the labor market. So that'll be a sticky point as we get close to the next Fed meeting. Consumer spending is also strong, according to the GDP report. But that could have been because of increased auto sales and spending on services such as health care, personal care, and utilities. Retail sales released earlier in January indicated that holiday sales were lower.

There's a chance we could see retail sales slowing in Q1 2023 as some households run out of savings that were accumulated during the pandemic. This is something to keep an eye on going forward, as a slowdown in retail sales could mean increases in inventories. And this is something that could decrease economic activity.

Overall, the recent GDP report indicates the U.S. economy is strong, although some economists feel we'll probably see some downside in 2023, though not a recession. But the one drawback of the GDP report is that it's lagging. It comes out after the fact. Wouldn't it be great if you had known this ahead of time so you could position your trades to take advantage of the rally? While there's no way to know with 100% accuracy, there are ways to identify probable events.

3 Ways To Stay Ahead of the Curve

Instead of waiting for three months to get next quarter's GDP report, you can gauge the potential strength or weakness of the overall U.S. economy. Steven Sears, in his book The Indomitable Investor, suggested looking at these charts:

  • Copper prices
  • High-yield corporate bonds
  • Small-cap stocks

Copper: An Economic Indicator

You may not hear much about copper, but it's used in the manufacture of several goods and in construction. Given that manufacturing and construction make up a big chunk of economic activity, the red metal is more important than you may have thought. If you look at the chart of copper futures ($COPPER) you'll see that, in October 2022, the price of copper was trading sideways, but, in November, its price rose and trended quite a bit higher. This would have been an indication of a strengthening economy.

CHART 1: COPPER CONTINUOUS FUTURES CONTRACTS. Copper prices have been rising since November 2022. Chart source: StockCharts.com. For illustrative purposes only.

High-Yield Bonds: Risk On Indicator

The higher the risk, the higher the yield. That's the premise behind high-yield bonds. In short, companies that are leveraged, smaller, or just starting to grow may not have the solid balance sheets that more established companies are likely to have. If the economy slows down, investors are likely to sell the high-yield bonds and pick up the safer U.S. Treasury bonds.

Why the flight to safety? It's because when the economy is sluggish, the companies that issue the high-yield bonds tend to find it difficult to service their debts. When the economy is expanding, the opposite happens—they tend to perform better.

The chart below of the Dow Jones Corporate Bond Index ($DJCB) shows that, since the end of October 2022, the index trended higher. Similar to copper prices, high-yield corporate bond activity was also indicating economic expansion. You'll see similar action in charts of high-yield bond exchange-traded funds (ETFs) such as iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and SPDR Barclays High Yield Bond ETF (JNK).

CHART 2: HIGH-YIELD BONDS TRENDING HIGHER. The Dow Jones Corporate Bond Index ($DJCB) has been trending higher since end of October 2022.Chart source: StockCharts.com. For illustrative purposes only.

Small-Cap Stocks: They're Sensitive

Pull up a chart of the iShares Russell 2000 ETF (IWM) and you'll see similar price action (see chart 3). Since mid-October, small-cap stocks (the Russell 2000 index is made up of 2000 small companies) have been moving higher.

CHART 3: SMALL-CAP STOCKS TRENDING HIGHER. When the economy is expanding, small-cap stocks trend higher.Chart source: StockCharts.com. For illustrative purposes only.

Three's Company

If all three of these indicators are showing strength, you can expect the GDP number to be strong. There are times when the GDP number may not impact the markets, but, when inflation is a problem and the Fed is trying to curb it by raising interest rates, the GDP number tends to impact the markets.

This scenario is likely to play out in 2023, so it would be worth your while to set up a GDP Tracker ChartList. Want a live link to the charts used in this article? They're all right here.


Jayanthi Gopalakrishnan

Director, Site Content

StockCharts.com

 

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

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