Unit car sales rose for the second month in a row but remain weak

Light vehicle sales totaled 13.3 million at an annual rate in July, up from 13.0 million at a pace in June. The July result was a 2.6 percent increase from the previous month and the third increase in the past four months. It was the 14th straight month under the 16 to 18 million range, averaging just 13.6 million over that period (see first chart). Weak car sales are largely due to a shortage of components that has limited production, leading to lower inventory and higher prices.

Dividing sales by origin of assembly, domestic car sales rose to 10.7 million units, compared to 10.7 million in June, an increase of 3.2 percent, while imports remained unchanged at 2.65. Domestic sales were generally in the 13 million to 14 million range in the period prior to the pandemic, averaging 13.3 million for the six years through December 2019. The domestic share was 80.1 percent in July versus 79.6 in June.

Within the domestic light vehicle category, domestic vehicle sales amounted to 2.01 million in July, compared to 2.04 million in June, down 1.5 percent. Domestic light truck sales were 8.68 million, compared with 8.32 million in the previous month, an increase of 4.4 percent. This puts the share of domestic light trucks in total domestic car sales at 81.2 percent, continuing the long-term upward trend (see chart two).

Local agglomerations fell in June, reaching 10.01 million at a seasonally adjusted annual rate. This is down 1.7 percent from 10.19 million in May and below the average pace of 10.8 million for the three years through December 2019 (see chart three).

A shortage of components, especially computer chips, continues to constrain production for most manufacturers, leading to a scarcity of many models, leading to lower inventory and higher prices. An incoming estimate of auto stocks came in at 114,300 in June, up from 102,600 in May but still near an all-time low (see fourth chart). Inventory may be flat as the average over the past 10 months was 109,930 and did not fall below 100,000. The Bureau of Economic Analysis estimates that the inventory-to-sales ratio rose to 0.555 in June, up from 0.526 in May and the highest since August 2021 (See the fourth chart).

Low inventory levels have driven prices up sharply over the past two years, with average consumer spending on a vehicle hitting $34802 in June, up 3.2 percent from May to a new record high (see chart five). Average consumer spending on a light truck rose to $50,170 from $49,647 in May, up 1.1 percent from the month, and hitting a new high (see chart five).

As a share of personal disposable income per capita, average consumer spending on a car was 62.3% versus 60.8% in May and up sharply from 51.8% in December 2019. Average consumer spending on a light truck as a share of personal disposable income was 89.8% versus 89.4% in May and 78.8% in December 2019 (see chart 5).

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 after more than 25 years researching financial and economic markets on Wall Street. Previously, Bob was Head of Global Equity Strategy for Brown Brothers Harriman, where he developed an equity investment strategy that combines top-down macro analysis with upward fundamentals.

Prior to BBH, Bob was Chief Equity Analyst at State Street Global Markets, Chief Economist at Prudential Equity Group and Chief Economist and Financial Markets Analyst at Citicorp Investment Services. Bob holds an MA in Economics from Fordham University and a BA in Business Administration from Lehigh University.

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