ECONOMY: Growth Sluggish
Real gross domestic product (GDP) rebounded in the second quarter of 2013 to 2.5% at an annual rate from 1.1% in the first quarter. On a year-over-year basis, second quarter growth in real GDP was only 1.6%. Growth was led by a pickup in investment, particularly in business and residential construction. Exports also grew strongly in the second quarter after declining in the first quarter.
Federal spending continued to be a drag on the overall economy, declining at an annual rate of 1.6%, but less so than in the first quarter when it declined 8.4%.
Slow growth averaging about 2% since the end of the recession has been a problem for the labor market where the unemployment rate has remained uncomfortably high. However, slow growth has postponed the development of tight labor and product markets that lead to higher inflation, higher interest rates and ultimately the next recession.
Housing continues to be the main factor that has shifted from a drag on economic growth to a stimulus. After declining for six years in a row, real residential construction spending increased 12.9% in 2012, and 14% in the first half of 2013.
We continue to expect a reasonable compromise on federal spending and the debt ceiling. In addition, the boom in U.S. energy production will reduce the cost of producing energy intensive goods in the U.S. and add to manufacturing growth.
This improving U.S. outlook when combined with a recovering Europe, a stronger China, and a Japan that is aggressively trying to grow, provide the ingredients for improving worldwide economic growth in the next few year..
NEW VEHICLE SALES: Sales Growth Strong
New light vehicle sales picked-up to a 15.3 million annual rate in the second quarter of 2013 from 15.0 million in the first quarter. The second quarter sales rate of 15.3 million was the highest in five years. The first two months of the third quarter saw an average sales rate of 15.9 million with August coming in at 16.0 million, the highest in six years.
The improving economy, a declining unemployment rate, cheap and easy credit conditions, attractive fuel-efficient models, a great deal of pent-up demand, and significant increases in housing and stock market wealth are resulting in higher new light vehicle sales. Continuation of these conditions is expected to produce total new light vehicle sales totaling over 15 ½ million units this year and over 16 million next year. As the raw material of the auction business, strong new vehicle sales portend positive auction volume trends going forward.
USED VEHICLE SALES: Sales Growth Slows
Second quarter 2013 year-to-year growth in used vehicle sales decelerated to 1.7% from the strong first quarter gain of 7.9%. In 2012, 40.5 million used units were sold, the most in five years. Continued strong new sales will provide supply to the used market leading to a 2013 increase in used retail sales in the 3% to 4% range.
AUCTION VOLUME: Second Quarter Up Strong
In the second quarter of 2013, the expected pickup in commercial consignment occurred. After declining for four years, the turnaround in new light vehicle sales that began in the second half of 2009 started to positively impact commercial consignment. With dealer consignment growth continuing strong, total auction volume increased 9.4% in the second quarter for the largest gain since 2006.
Now that the industry is firing on all cylinders, we expect to see total auction volume growth for years to come.
TYPE: Dealer consignment growth picked up in the second quarter 2013 to 7.4%, while commercial consignment was up 11.9%, the highest quarterly gain in five years.
SEGMENT: In the second quarter both passenger car and light truck auction volume increased significantly from a weak first quarter.
AUCTION PRICE: Down
Average auction prices declined 4.3% in the second quarter as strong retail sales driven trade-in supply remained high. Recent months show smaller declines as the supply-demand balance seemed to be improving.