Economic conditions are creating a more challenging backdrop for the Canadian and U.S. auto markets, despite stronger vehicle spending during the second quarter, according to Cox Automotive’s latest Auto Market Weekly Summary.
The report highlights slower-than-expected economic growth, stubborn inflation and weakening household finances as factors that could limit vehicle sales in the months ahead.
The U.S. economy expanded at an annualized rate of 1.5 per cent in the second quarter, below market expectations of 2.0 per cent. Consumer spending rebounded to 3.2 per cent after a weak first quarter, while spending on motor vehicles and parts increased 10.5 per cent, up from 4.1 per cent in the previous quarter.
However, Cox Automotive said stronger consumer spending was supported in part by larger tax refunds, a temporary boost that is expected to fade during the second half of the year.
The report also found personal income rose 0.2 per cent in June while spending increased 0.3 per cent. On a year-over-year basis, expenses climbed 6.3 per cent compared with income growth of 3.9 per cent, contributing to a decline in the personal savings rate to 2.7 per cent, its lowest level in four years.
Inflation eased slightly in June, with Personal Consumption Expenditures (PCE) inflation reaching 3.7 per cent year over year, while core PCE inflation slowed to 3.3 per cent. Even so, both measures remain well above the U.S. Federal Reserve’s 2-per-cent target.
Cox Automotive also pointed to higher long-term interest rates following the Federal Reserve’s July meeting, warning that rising funding costs could eventually translate into higher auto loan rates. At the same time, consumer confidence declined in July, with fewer consumers indicating plans to purchase a new or used vehicle over the next six months.
