Consumer Insights

Consumer Insights Quarter 2 2020

Consumer Insights Quarter 2 2020

Key Economic News Observed through Q2 ’20

  • Real gross domestic product(GDP) decreased at an annual rate of 32.9% in the second quarterof 2020, according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 5.0%. The decline in second quarter GDP reflected the response to COVID-19, as “stay-at-home” orders issued in March and April were partially lifted in some areas of the country in May and June, and government pandemic assistance payments were distributed to households and businesses. This led to rapid shifts in activity, as businesses and schools continued remote work and consumers and businesses canceled, restricted, or redirected their spending.
  • By June, Consumer confidence rose to 98.1 – more than expected, as the U.S. loosened stay-at-home and quarantine restrictions, raising hope for an economic recovery, according to data released Tuesday. Economists polled by Dow Jones expected consumer confidence to rise to 91 from a May reading of 85.9. “The re-opening of the economy and relative improvement in unemployment claims helped improve consumers’ assessment of current conditions,” said Lynn Franco, Sr. Dir. of economic indicators at The Conference Board.
  • Total nonfarm payroll employment rose by 4.8mm in June and the national Unemployment rate declined to 11.1%. These improvements in the labor market reflected the continued resumption of economic activity that had been curtailed in March and April, due to the pandemic and the efforts to contain it. In June, employment in leisure and hospitality rose sharply.  Notable job gains also occurred in retail trade, education and health services, other services, manufacturing and professional and business services.
  • In the second quarter, there was an actual 10.5% drop in personal consumption, or what people were spending their money on. That’s bad, but not nearly as bad as the annualized number, which is driven by the dramatic short-term changes caused by the COVID-19 pandemic.
  • The biggest decline this quarter was in consumer spending on services, down 13.3%, led by steep drops in expenditures on health care, transportation services, recreation, travel, and dining out. But purchases of consumer goods typically bought at retail were also down by 4.5%, with durable goods, defined as items expected to last three or more years, dropping 1.5% and nondurables down 5.9%.
  • With the economy now in recession, recovery will require American consumers to do their part and get back to spending. But that’s a big ask, with unemployment rates rising again for the first two weeks of July after showing improvement since mid-March.
  • Not only must more Americans get back to work, so they have money to spend, but they also have to recover their confidence to spend. That may take longer.
  • Foot traffic to essential businesses like The Home Depot and Lowe’s has increased significantly since the outbreak of COVID-19.
  • For the week ending June 20, Retail maintained momentum with steady week-over-week dollar growth of 6%. Year-over-year dollar growth was strong for the week at 21%.

 

Automotive Market Trends

 

  • Auto sales in the U.S. showed signs of life later in the second quarter, though numbers remained down on a year-to-year basis due to the COVID-19 pandemic, according to data from NADA (National Automotive Dealers Association).
  • Vehicle sales continued to show signs of recovery after bottoming out in April at a seasonally adjusted annual rate of 8.6mm units, the lowest on record since the federal government began tracking sales. June’s SAAR of 13.05mm units was a significant improvement over April. Light Vehicle sales of between 13 and 13.5 mm units are estimated for full year 2020.
  • Retail sales have recovered much more quickly than Fleet sales. In June, Fleet sales were down by 73% and Retail sales by only 6%. Several major Rental Car companies canceled or significantly reduced their Fleet orders, causing such sales to fall sharply.
  • The retail sales recovery has been driven by generous manufacturer incentives. According to J.D. Power, incentive spending is expected to average $4,411 per unit, an increase of $445 from June 2019 and a record level for the month of June. After reaching an all-time record in April 2020 of $4,981 per unit, incentive spending was dialed back in May and June. For the rest of the year, incentive levels are expected to be elevated compared to last year but likely won’t be as high as in April 2020.
  • Dealers have experienced significant reductions in inventory compared to a year earlier, due to plant shutdowns and this robust recovery in Retail demand. At the end of June, inventory was 2.6mm units, compared to 3.9mm units a year earlier.
  • Light Trucks continue to be popular, accounting for 77% of all New Vehicles sold in Jun ‘20. In H1 ‘20, 3 out of every 4 vehicles sold were Light Trucks.
  • According to a survey conducted by IMR, A whopping 20.1% of vehicles had some type of maintenance delayed in the second quarter of this year, up from 17.6% in Q1. The increase represents approximately 8.5mm vehicles for which respondents decided to postpone service.
  • By the end of Q2 ‘20, the total Light Vehicle population grew +1.3% (vs. YAGO), with Light Trucks accounting for 59% of VIO (Vehicles In Operation). Compact / Crossover Utility Vehicles saw the strongest growth of any segment, up +9%. Pickup Trucks also saw strong growth, up +7%.
  • Average Light Vehicle age in U.S. through Q2 ’20 inched up to 12.1 years. This increased age is due in large part to the oldest vehicles in operation (aged 15+) gaining +3 share points (vs. Q1 ‘20) and now accounting for 34% of total VIO. Growing demand for Used vehicles will continued to drive this average up.
  • The total # of Miles Driven in Jun ‘20 fell -13% (vs. Jun ‘19), driving the YTD decline of -16.6% / -264 billion miles.
  • As essential businesses, Auto Parts Chains are staging a recovery in Retail DIY revenue, according to M Science’s analysis of weekly Credit Card revenue for the top chains (AAP, AZO, ORLY & NAPA).
  • The average price for a gallon of regular gas purchased YTD (through Q2 ’20) was $2.08, down -16%/-$0.39 vs. YAGO.

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Consumer Market Conditions

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