Making sense of economic developments during COVID-19: an overview of key indicators to watch

Posted by George Augustaitis on March 27, 2020

COVID-19 is disrupting nearly all facets of the US economy, and as many dealers are experiencing, the domestic automotive market is no exception. As Director of Industry Analytics at CarGurus, I’ll be posting regular updates about economic developments impacting your business, including developments that signal recovery, which will come.

To shape my analysis of the evolving situation, I’m tracking a variety of indicators. This post provides an overview of those indicators and explains why they matter for the automotive category. Some are traditional economic indicators, which are weeks if not months behind and will not account for the full impact of COVID. Others are consumer behavior indicators, which help to identify real-time changes in consumer patterns.

Traditional economic indicators:

Consumer Sentiment – This measures consumers’ confidence about the state of the economy and their income’s stability, which can impact their spending activity. Consumers need to feel confident before purchasing big-ticket items like cars. As layoffs increase, spending slows, and uncertainty grows, declining confidence could lead to consumers delaying new vehicle purchases. Instead, consumers may turn to the used vehicle market due to the lower cost. For example, in recent weeks, new vehicle search share has declined, while used vehicle search share has spiked in the Seattle-Tacoma DMA.

Job Openings Labor Turnover Survey (JOLTS) – This provides insight into the number of job openings, hires, and separations in the labor market. At the start of 2020, the job market favored employees with more job openings than “job quits” per month. However, COVID-19 could change this trend and impact the automotive market, specifically consumer automotive purchases.

Unemployment RateTracking unemployment claims provides a snapshot of the areas that have been hit the hardest by the economic impact of COVID-19. As of Thursday, March 26, jobless claims soared to 3.283 million, shattering the previous record of 695,000 claims from October 2, 1982.

Small Business Optimism from the National Federation of Independent Business This measures small business hiring and confidence and could impact the new and used vehicle market alike. A decline in small business optimism will hurt the overall economy.

Indicators that impact specific automotive segments:

Corporate Profits Before TaxesThis metric is strongly correlated to luxury sales. Even though it’s a small portion of the market, the luxury sector creates significant profits for OEMs and is an important part of the automotive sector.

Willingness to Loan (consumer installments) – This directly impacts the general automotive market. If banks aren’t willing to loan, consumers won’t be able to finance their vehicles. Historically, this indicator declines during recessions, and I’ll be closely monitoring it as the fiscal stimulus package is rolled out.

Housing Starts, Builder Optimism, Remodeling Spend, and Permits – Housing data and the truck segment are positively correlated. The top three selling new vehicles are trucks, and they are also often the most searched vehicles in each state. It’s important to track the truck market in isolation for the US.

90-Plus Day Auto Delinquency Rate – Headed into 2020, both student loan and auto forgiveness rates were near recession highs. As a result of COVID-19, there will likely be an increase in the percentage of people 90+ days late on payment. This is especially true for subprime loans. The expected increase in delinquencies may be tempered by the fiscal stimulus package and recent programs from OEM captives, including Ford Credit, Toyota Financial, and others, though.

Market-specific consumer behavior indicators:

The COVID Tracking ProjectThis site provides data on the number of cases tested for COVID-19 in the US, as well as the results.

TomTom’s traffic data – Traffic congestion data shows which cities are following social distancing recommendations and provides insight into commuting changes.

SpotHero parking dataIf SpotHero continues to post parking information, it will be a leading indicator to track when things return to normal. The data should show when people are resuming normal activities, such as shopping and attending events.

Next week, I’ll dive into how the fiscal stimulus package and jobless claims affect the automotive industry. If you have specific questions about economic trends and their impact on your business, please reach out to me at pr@cargurus.com, so I can address them in future posts.

Topics: analysis, covid-19, market analysis