Economic Pressures Cloud Auto Sales Outlook

Economic pressures are casting a cloud over the auto sales outlook in Canada and the US. According to Cox Automotive's latest Auto Market Weekly Summary, slower-than-expected economic growth, stubborn inflation, and weakening household finances could limit vehicle sales in the coming months.

The report highlights that the US economy expanded at an annualized rate of 1.5% in the second quarter, below market expectations of 2%. Consumer spending rebounded to 3.2%, while spending on motor vehicles and parts increased 10.5%, up from 4.1% in the previous quarter.

However, Cox Automotive noted that stronger consumer spending was supported in part by larger tax refunds, a temporary boost expected to fade during the second half of the year. The report also found personal income rose 0.2% in June while spending increased 0.3%. On a year-over-year basis, expenses climbed 6.3% compared with income growth of 3.9%, contributing to a decline in the personal savings rate to 2.7%, its lowest level in four years.

Inflation eased slightly in June, with Personal Consumption Expenditures (PCE) inflation reaching 3.7% year over year, while core PCE inflation slowed to 3.3%. Even so, both measures remain well above the US 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.