Class Is In Session

ECONOMY: Pumping the Brakes

The economy showed more signs of cooling off this week, which is actually good news for our inflation woes.

• Growth Rate — Until just this year, Gross Domestic Product has grown consistently above 2% for the past six quarters. GDP was recently adjusted down to 1.3% from 1.6%.‍
• Interest Rate — Federal Reserve officials unanimously voted to to keep the benchmark federal funds rate in a range of 5.25% to 5.5% and penciled in just one interest-rate cut this year (compared to the three reductions forecast in March). They're now predicting four cuts in 2025 (three more than previously outlined).

EMPLOYMENT: Mo' Jobs, Mo' Problems

The labor market is strong, but showing signs of concerning ramifications. Here’s what’s shaking:

• Job Gains: May brought a surprise 272K new jobs, far exceeding the 180K expected.
• Unemployment Ticks Up: Despite the availability of jobs, it seems there may not be enough workers to fill all those positions as we saw the unemployment rate rise to 4% (the highest in over two years).
• Less Tight Market: The openings-to-unemployed ratio has dropped to 1.2 from 1.75 a year ago, back to pre-pandemic levels.

INFLATION: Easing, But Still a Nuisance

Inflation is finally cooling down which paves the way for more rate cuts. Here’s the latest buzz:

• May CPI Report: Headline CPI was unchanged month-over-month, and core CPI rose just 0.2%, both below expectations.
• Yearly Drop: Core CPI’s 3.4% rise is the lowest since April 2021.
• Service Costs: Services inflation posted a modest 0.2% gain, the lowest since September 2021.

GDP GROWTH: Slower Than Expected

The U.S. economy’s growth pace has slowed more than initially thought in Q1 2024:

• GDP Figures: The U.S. economy produced $22.7T of goods on an inflation-adjusted annualized basis.
• Growth Rate: GDP growth was recently adjusted down to 1.3% from 1.6%.
• Economic Impact: The slowdown is partly attributed to the Federal interest-rate (which is currently at a two-decade high) may be starting to weigh heavily on businesses' and consumers' bank accounts.

GAS PRICES: Enjoy It While It Lasts

The cost of a gallon of gas has dipped...but for how long? Here’s the scoop:

• Price Drop: The average price per gallon of regular gas has fallen to $3.52 (almost a quarter since late April). That’s an improvement from a year ago when it was $3.57/gallon, and two years ago when it was at its peak of $4.88/gallon (aka The Great Gas Gloom).
• Consumer Sentiment: Lower gas prices have typically been linked to improved consumer sentiment. The math is pretty simple: fuller wallet = happier shopper.
• Future Outlook: Economists warn that prices could rebound in the coming weeks as more vacationers hit the road.

DEALER SENTIMENT: Cool, Calm, and Collected (but Cautious)

Auto dealers are consistently worried about the same big issues, but political concerns are on the rise as we approach the November presidential election:

• Top Concerns: Interest Rates, the Economy, and Market Conditions remain primary concerns.
• Political Climate: Increasingly cited as a major factor, with 36% of dealers, especially franchised ones, highlighting its impact.

OVERALL MARKET VIBES: Stably but Shaky

The Q2 2024 Cox Automotive Dealer Sentiment Index reveals a stable yet uncertain market environment for U.S. auto dealers:

• Current Market Index: Stable at 42, indicating a weak market perception.
• Future Outlook: Dropped from 51 to 44, influenced by a weak tax refund season and political/economic uncertainty.
• Consumer Uncertainty: Political and economic concerns are keeping both consumers and dealers on edge.

NOTABLE TRENDS: Look At The Bright Side

Despite the overall weak market sentiment, there are some silver linings:

• Profit Index: Increased for the first time since Q3 2021, reaching 36.
• Customer Traffic: Improved both online and in-person.
• Cost Pressures: Reached an all-time high, with price pressure at 65.
• New-Vehicle Sales: Index improved to 53; inventory levels remain strong.
• Incentives: Still below pre-pandemic levels at 34.