Consumers, Cars, and Gasoline

Consumer Strength

We’ve been enjoying a strong equity market overall, but as always, we are looking at our leading economic indicators. The strength of the consumer and robust consumer spending have been a key driver of the economy and equity markets in the last 12 months. As investment managers, we always look for cracks that are starting to show in the economy. One of those potential cracks is around consumer spending, specifically the durable goods order report that came out last week. Durable goods orders fell by 6.1%, the biggest drop in nearly four years. When discussing durable goods, we are talking about items that last more than three years and cost more than daily items, such as dishwashers, refrigerators, washers, and dryers. We follow durable goods orders because it has historically been a good barometer for how consumers are feeling and can serve as a proxy for the overall economy. We’ll continue to watch this carefully as the lower durable goods order report came out last week at the same time as when the consumer confidence index fell. We’ll be analyzing other consumer reports to see if this is a short-term blip or what looks to be a longer-term trend.

 

The Cost of Automobiles

The cost of automobiles is something we watch closely because, for most people, it’s the second largest purchase in their lifetime behind their home. It’s very impactful on an individual’s balance sheet. Since COVID, the cost of the average car has skyrocketed. The average cost of a new car is $47,000. That’s up about 33% from 2019. The good news is that we’ve started to see that come down. Baron’s created a Vehicle Affordability Index. In 2019, the index was at 56. This combines wage growth, interest rates, and new car prices. It started at 56, went up to 66 in December 2022, and has now dropped back to 61. What does that mean? It means the average new car price is down around $3,000. We’ve seen interest rates come down a bit, so the car-buying public should start to see some relief as supply chains come through and the new car market rolls over. The downside is that this may not shift down to the used car market. Barron estimates that due to the reduction in car sales from 2020 to 2022, there are about ten million missing cars on the market. These are cars that would have been purchased and available on the resell market that were never purchased or built. That’s probably added upward pressure from the used car market. With how large of a purchase an automobile is, this is a massive driver in the economy. However, it’s great to see some relief with prices coming down. On the downside, we are expecting to see oil prices go up. Opec announced over the weekend that they’re extending their two-plus million-dollar barrel-per-day production cut through June. We saw the oil market react higher to that. Your car may be cheaper, but it will cost you more to get there to buy it. There’s no absolute, but there’s always a little bit of good and bad. However, it all impacts markets and consumers at the end of the day.

 

 

Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here

Bobby Norman, CFP®, AIF®, CEPA®
Managing Director
Wealth Consultant
Email Bobby Norman here

Trey Booth, CFA®, AIF®
Chief Investment Officer
Wealth Consultant
Email Trey Booth here

Fi Plan Partners is an independent investment firm in Birmingham, AL, with a team of professionals serving clients across the nation through financial planning, wealth management and business consulting. The team at Fi Plan Partners creates strategies in the best interest of their clients using fee based investing.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Economic forecasts set forth in this presentation may not develop as predicted.

No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.

Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.

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