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Sales of cars and parts outperformed a healthy gain in July retail sales, but prices for many goods are rising and consumers are getting skittish, an automotive economist reported Monday.
Jonathan Smoke, chief economist for Cox Automotive, said consumer surveys are showing growing pessimism, but retail sales remained strong in July.
“Sentiment has deteriorated in August so far, and it seems to be driven by sensitivity to inflation. The key question is will this change spending behavior in the weeks and months ahead,” Smoke wrote in his weekly economic summary.
The U.S. Census Bureau reported Aug. 15 that monthly retail sales increased 0.5% following a 0.9% increase in June.
“Retail sales remain strong, with July building on a strong June,” Smoke said. “The consumer is still behind the wheel driving the U.S. economy.
The auto sector outperformed the rest of the retail market as sales excluding motor vehicles and parts increased 0.3% while sales of motor vehicles and parts increased 1.6%.
The Consumer Price Index (CPI) minus food and energy rose 3.1% in July from a year earlier— a gain that was more than expected and higher than June’s 2.9% annual rate. The overall CPI was steady at 2.7% in July.
“Core inflation is starting to show reacceleration from the impact of tariffs, but much of the increase thus far is in services, not goods,” Smoke said. “Accelerating growth in the Producer Price Index, which tracks prices that businesses pay, point to tariff pressures that will likely either drive consumer prices higher or reduce business earnings, or a combination of both.”
Meanwhile, economists from the Mortgage Bankers Association are also expecting tariffs to ratchet up price and the economy to slow.
“The housing market is cooling and is expected to cool further, with builders tapping the brakes on new construction as inventories of new and existing homes increase and home prices flatten out nationally, with price declines in more markets,” according to a July 28 report from Chief Economist Mike Fratantoni and Deputy Chief Economist Joel Kan.
“The housing market is cooling and is expected to cool further, with builders tapping the brakes on new construction as inventories of new and existing homes increase and home prices flatten out nationally, with price declines in more markets,” they wrote.
The MBA said it expects the unemployment rate to rise from its current level of 4.1% to 4.6% at year’s end before peaking at 4.8% in the first half of 2026 “as businesses reduce hiring as consumers pull back on spending as inflation pushes past the 3% mark over the next 12 months.”
Higher unemployment rates would be a factor leading credit unions to increase their provisions for expected loan losses.
The MBA economists said they expect the chance of a recession is 40% through next July.
“If the economy does enter recession, mortgage rates are likely to drop faster than in our baseline forecast, which would push up refinance volume, but would lead to a sharper increase in the unemployment rate, which would slow the purchase market.
“Alternatively, if the tariffs result in stickier inflation rather than just being the result of a one-time price increase, the rate path could go higher, leading to fewer refinances.”
Contact Jim DuPlessis at JDuPlessis@cutimes.com.
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