Economists See Strong Job Gains, Hope for CU Car Sales

Strong job gains and signs of improvement in auto sales in January gave credit union economists reasons for optimism Friday.

And what’s good for jobs is what’s good for credit union members, and their ability to save or borrow for cars and homes.

On Friday, the U.S. Bureau of Labor Statistics reported that the nation gained 467,000 jobs from December to January after seasonal adjustments. However, the nation had a seasonally adjusted 149.6 million non-farm jobs in January, still down by 2.9 million, or 1.9%, from its pre-pandemic level in February 2020.

The unemployment rate was 4.0% in January, up slightly from 3.9% in December after seasonal adjustments.

”Although the unemployment rate ticked up, that was the result of a surge in labor force participation,” NAFCU Chief Economist Curt Long said. “This report will ease market-driven recessionary concerns and supports an aggressive tightening path for the Federal Reserve this year.”

Both Long and CUNA Senior Economist Dawit Kebede said the strength of the gain in non-farm jobs indicates American jobs ducked the surge in COVID-19 cases from the Omicron variant. They noted job growth was also strong in COVID-sensitive industries such as leisure and hospitality.

“January’s jobs report surprised to the upside, as the expected bite from Omicron never materialized,” Long said.

Kebede noted that the average hourly wage continued to grow in January, registering a 5.7% increase over the past 12 months.

“This indicates that hiring demand remains high,” Kebede said. “The labor force participation rate was also adjusted upwards, signaling that more people are rejoining the labor market after having dropped out due to COVID-related reasons.”

Kebede said the report indicates strong consumer demand. CUNA relies heavily on the jobs report in its forecasts for credit union loan growth. About half of credit union portfolios are in home loans and a third in car loans.

Mike Fratantoni, SVP and chief economist for the Mortgage Bankers Association, said the increase in wages is still below the pace of inflation, “meaning that workers’ purchasing power remains crimped, rising wages will support housing demand this year.”

The U.S. Bureau of Economic Analysis on Thursday reported that dealers sold new cars and light trucks at a seasonally adjusted annual rate of 15 million in January. The January SAAR was up 20% from December but down by about 10% from both January 2021 and the pre-pandemic January 2020.

“The auto market may be breaking out of its malaise as sales in January rose after a sharp decline over the second half of 2021,” NAFCU’s Long said.

Long said he sees the most promise in an improvement in inventory, which has plagued dealers and car buyers since a microchip shortage became severe last summer.

“Preliminary data from car buying app CoPilot shows used car prices beginning to decline due to increases in dealer inventories. According to Truecar, while still up 16% from a year ago, new car prices dropped 2% in January,” Long said.

Long said the decline in prices has been the most precipitous for cars that are three years old or less.

“The drop in prices on models acting as substitute goods for unavailable new vehicles is another indicator of significant increases in production. GM anticipates the availability of semiconductors to be much improved in the second half of 2022,” Long said.

“Until then, sales are likely to remain below pre-pandemic levels, but above last year’s dismal numbers,” he said. “Once production catches up, pent up demand should result in a steady improvement in sales even in a period of rising interest rates.”

Cox Automotive said in a Thursday news release that the BEA’s report of a 10% drop in new car sales from January 2021 “in fact may be a relatively good result considering new-vehicle inventory is down by more than 50%.”

“We still believe that inventory and product availability will be driving the market this year, as demand will remain robust. In 2022, if it can be built, it will be sold,” Cox Automotive said.