🚗 Auto sector signal

Plus: Capital spending surge | Monday, February 27, 2023

Open in app View in browser   Presented By Panasonic   Axios Macro By Neil Irwin and Courtenay Brown · Feb 27, 2023 March is nearly here, and with that comes major economic data releases for February. First up this week: supply managers' indexes for manufacturing (Wednesday) and services (Friday). Today, we look at a warning sign in the used car market for 2023 inflation. Plus, the latest numbers on durable goods orders. 🇺🇦 Situational awareness: U.S. Treasury Secretary Janet Yellen made an unannounced trip to Kyiv this morning, where she met with Ukrainian President Volodymyr Zelensky and announced another $1.25 billion in financial assistance as the nation resists Russian invasion. Today's newsletter, edited by Javier E. David, is 656 words, a 2½-minute read.     1 big thing: Used car prices and disinflation Illustration: Aïda Amer/Axios   Understanding the rising risks that inflation will be more persistent than seemed likely just a couple of months ago takes looking at what's going on in the used car market. Used car prices have fallen each month from July through January, pulling down inflation. But new signals from wholesale auctions show that the trend may reverse. Why it matters: Used cars are just one of many types of durable goods that benefited from stabilizing supplies in the second half of 2022. But they are not poised to play the same role in 2023, because supply chains can only heal once. By the numbers: Since July, durable goods prices have fallen 2.5%, according to the consumer price index, subtracting about 0.3 percentage points from overall inflation in that span. Used car prices were down about 9%. But an early read on wholesale used car prices shows an increase of 4.1% in the first half of February — the largest gain for the month since 2009, according to auto auction house Manheim. What they're saying: "Dealers essentially put the brakes on. They weren't really acquiring vehicles, they were trying to unload vehicles from their lots," says Chris Frey, senior manager of economic and industry insights at Cox Automotive, which compiles the Manheim Index. "But when things start turning up, and it looks like things might get better, it's almost like a feeding frenzy. That's what looks to be happening now. A lot of these dealers are jumping back in the wholesale market," Frey says. Between the lines: That rebound is happening alongside more depressed supply, in part because of a lingering pandemic effect: Leases became less popular, leaving fewer instances of expiring ones to funnel into the used car market. Goldman Sachs also points to smaller flows of chips and other issues that stem from China's COVID-19 wave that "contributed to a 10% pullback in US auto assemblies since October." "Coupled with strong demand, this production shortfall likely forced some consumers into the used car market, bidding up prices accordingly," economists at the bank wrote in a note on Friday. The intrigue: Goldman said it now expects used car prices to fall 7.5% on a year-over-year basis in December 2023, versus the 15% decline it previously anticipated. The bottom line: The goods sector in the months ahead may not be as reliable of a contributor to the disinflation trend that appeared to be underway (until January, that is). "If dealers are able to pass along these higher used vehicle acquisition costs to the consumer, we may see some uptick" in used vehicle prices, says Tom Kontos, chief economist at Adesa, the used car auction dealer owned by Carvana. Disclosure: Cox Automotive and Axios are both owned by Cox Enterprises.     A message from Panasonic Deepening our commitment to sustainability     Panasonic is helping lead the changes necessary to address the climate crisis. Here's how: From creating more sustainable business practices, products and solutions to helping our customers integrate sustainable technologies in their projects. Learn more.     2. Capital spending rebounded in January Data: U.S. Census Bureau; Chart: Axios Visuals Seemingly every data point has shown the economy surging ahead in January, after slumping some in November and December. Now you can add capital goods orders to that list. Driving the news: New orders for durable goods plunged in January, but that was due entirely to swings analysts anticipated in aircraft orders. Core durables, which exclude aircraft and defense, rose 0.7% in January after flatlining in November and December. Core non-defense orders — a good proxy for business investment spending — surged 0.8% after falling in both November and December. State of play: A similar pattern has played out in various data like retail sales, factory output and inflation, showing how a cooler economy late last year gave way to an early 2023 acceleration. Yes, but: Some of this is likely attributable to seasonal adjustments calibrated based on past experience; they can create misleading results if companies and individuals shift their month-to-month spending patterns. An exceptionally warm January also has contributed to last month's apparent economic strength. At the same time, there's little doubt the evidence that a meaningful economic slowdown is underway looks shakier and shakier with each 2023 data point.     A message from Panasonic Driving the future of sustainable transportation     As the leading electric vehicle (EV) battery manufacturer in North America, Panasonic continues to build on decades of battery expertise and technology innovation in the service of creating a greener, more equitable future. Learn how we're advancing the EV industry.   Are you a fan of this email format? Your essential communications — to staff, clients and other stakeholders — can have the same style. Axios HQ, a powerful platform, will help you do it.   Axios thanks our partners for supporting our newsletters. Sponsorship has no influence on editorial content. Axios, 3100 Clarendon B‌lvd, Arlington VA 22201   You received this email because you signed up for newsletters from Axios. 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