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Average Used Car Prices Soar to Nearly $30,000

Meanwhile, new cars are selling for almost $50,000, on average.

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This article was originally published by Money

Car buyers just can’t seem to catch a break. Average prices for new and used vehicles continue to skyrocket. Meanwhile, the auto industry is raking in record revenues despite selling fewer vehicles.

The average used car sold for a whopping $29,969 in December 2021, according to data from the auto research and buying site Edmunds shared with Money. That’s up from an average of $23,185 one year prior, for an increase of nearly 30%.

According to data released this week by Kelley Blue Book (KBB), the price of the average used car — which has more than 69,000 miles — was slightly lower in December 2021 than the figure from Edmunds. But it’s still very expensive in the grand scheme of things, with the average used car running $28,105.

As for new vehicle car prices, they’re soaring to new highs as well. The average price for a new vehicle in December 2021 was $47,077 according to KBB. That marks the ninth consecutive month of price increases and the highest price ever recorded by the auto research company.

By all accounts, 2022 will be another very challenging year for car buyers. Prices are likely to keep rising, with the average costs for used and new cars creeping closer to $30,000 and $50,000, respectively.

“These increases are changing the marketplace and are also likely changing who can afford to buy,” says Cox Automotive Senior Economist Charlie Chesbrough in a webcast released Friday. Cox Automotive is the parent company of Kelley Blue Book.

For new vehicles, prices in December 2021 are up about 14% from the previous year, an increase of $5,742. Compared to the previous month, that’s a 1.7%, or $808, price increase, according to KBB.

The average sales price for used cars jumped $536 from November 2021 to December 2021, KBB reported. In December 2020, used cars were $21,979. In other words, used vehicles were $6,126 cheaper roughly a year ago.

What’s more, on average, new vehicle buyers spent between $900 and $1,300 above the sticker price in December 2021, depending on the type of vehicle.

The drastic increase in car prices has contributed to the overall 7% inflation rate for consumer goods, with used car and truck prices up 37% over the past year, according to separate data from the Bureau of Labor Statics.

What’s behind high car prices?

According to industry economists, the pandemic has severely mucked with the supply of new vehicles. That, in turn, sent consumers flocking to purchase used vehicles. Now, the supply of new and used vehicles alike is low. So the prices for both continue to rise.

More specifically, the microchip shortage in the summer of last year drastically affected the amount of new vehicles that were arriving on the lots. Manufactures often decided to funnel their limited microchips into making higher-end vehicles with higher profit margins to compensate. As a result of focusing on luxury vehicles, fewer affordable options have been available at dealerships, and sales prices are ballooning.

In December 2021, the average buyer paid nearly $65,000 for a new luxury vehicle, whereas the average non-luxury vehicle cost about $43,000, per KBB. Average prices have soared particularly high for certain manufactures. For example, the average new vehicle transaction price across all makes from Tesla Motors and General Motors were 20% higher in December 2021 than a year prior.

Despite limited supply and fewer cars being sold, auto industry revenue is way up.

“The rise in vehicle prices is offsetting the loss in sales volume,” Chesbrough said.

In 2021, industry revenue reached $649 billion, which is nearly $100 billion higher than 2020 and more than 2019 revenue by nearly $2 billion.

And that’s with nearly 2 million fewer vehicles sold in 2021 versus 2019, according to Cox Automotive data.

“The market right now belongs to sellers,” Chesbrough said. “As a result, vehicle buyers looking for good deals will be challenged.”


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Economics

China Unexpectedly Cuts Key Rate, Adds Liquidity As Economic Growth Slowed, Retail Sales Slump

China Unexpectedly Cuts Key Rate, Adds Liquidity As Economic Growth Slowed, Retail Sales Slump

A busy night started with weakness in US equity…

China Unexpectedly Cuts Key Rate, Adds Liquidity As Economic Growth Slowed, Retail Sales Slump

A busy night started with weakness in US equity futures (Nasdaq down 0.5%) and an unexpected cut in a key China policy rate and a modest addition of liquidity. This was then followed by a mixed bag of China macro with a GDP beat but ugly retail sales disappointment.

As Bloomberg reports, China lowered a key interest rate for the first time since the peak of the pandemic in 2020 as a property-market slump and repeated virus outbreaks dampened the nation’s growth outlook. The People’s Bank of China cut the rate on its one-year policy loans by 10 basis points to 2.85%. That’s the first reduction since April 2020. It also slashed the rate on the seven-day reverse repurchase agreements by the same magnitude to 2.1%.

The central bank made the move while offering 700 billion yuan ($110 billion) via the medium-term lending facility, exceeding the 500 billion yuan coming due. It added 100 billion yuan with seven-day reverse repos.

“The PBOC has accelerated its pace of policy easing in order to guide borrowing costs lower and to encourage credit supply,” said Yewei Yang, an analyst at Guosheng Securities Co.

“The move suggests China’s economic is weak and it will trigger a significant slide in borrowing costs.”

The cut to policy rates indicates the PBOC is taking easier stance to deal with economic downward pressures which were reflected somewhat in a mixed set of data from China that showed growth slowing (albeit better than expected) and retail sales notably disappointing.

  • China 4Q GDP Grows 4% Y/Y; Est. 3.3%, but notably below Q3’s +4.9%

  • China Dec. Industrial Output Rises 4.3% Y/Y; Est. 3.7%

  • China Jan.-Dec. Fixed Investment Rises 4.9% Y/Y; Est. 4.8%

  • China Jan.-Dec. GDP Grows 8.1% Y/Y; Est. 8%

  • China End-Dec. Survey Jobless Rate Rises to 5.1% vs 5.0% Prior

  • China Dec. Retail Sales Rise 1.7% Y/Y; Est. 3.8%

As is clear in the chart below, all of the key macro measures worsened…

As Bloomberg’s Enda Curran notes, the retail sales weakness looks broad based. There was a big decline in sales of household electronics and automobiles and also contraction for restaurant/catering, clothing, jewelry and furniture. Given the news through January regarding the virus outbreaks, one wonders if that can turn around materially in the near term. The annual new years holiday would be an obvious boost in other years, but less clear how it plays out this year.

On a seasonally adjusted month/month basis, China’s retail sales rose in just four months last year. Even during 2020’s pandemic impacts, there were five months of such sales growth.

On top of the big miss for retail sales, online shopping shows more worrying signs for the country’s weakening consumer demand. Online retail sales grew 14.1% in 2021, the slowest annual pace since 2014.

Chang Shu and David Qu, economists at Bloomberg Economics, say the bigger-than-expected cut to the one-year MLF rate shows it’s serious about supporting the economy.

We give the final words to Peiqian Liu, an economist at NatWest Markets:

This is a decisive dovish tilt as the policymakers acknowledged the importance to stabilize short term growth.

The rate cut may translate into a broad-based 10bps lower in 1Y and 5Y LPR on Thursday.

In terms of our outlook for monetary policy in 2022, we think the PBOC will unlikely resort to “flood-style stimulus” of consecutive and aggressive rate cuts. Instead, we see room for moderate easing with another 20bps rate cut and 100bps RRR cut for the rest of this year.

US equity futures extended their losses despite the MLF rate cut…

One last thing of note, China’s stats folks say the country’s population was about 500,000 people more at year’s end than a year earlier (albeit a rounding error), but it signals that China hasn’t gotten to peak population just yet apparently.

Tyler Durden
Sun, 01/16/2022 – 21:28




Author: Tyler Durden

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Economics

U.S. Subsidies to Fossil Fuels

I just finished writing my review of Steven E. Rhoads’s excellent book titled The Economist’s View of the World. It’s excellent. In a longer than…

I just finished writing my review of Steven E. Rhoads’s excellent book titled The Economist’s View of the World. It’s excellent. In a longer than usual review, I didn’t have space to highlight his discussion of U.S. government subsidies to fossil fuels. We often hear how high they are. But Rhoads footnotes a Brookings study by Joseph Aldy that estimates those subsidies to total $41 billion over 10 years, for an average of just $4 billion a year. That’s not as high as we often see claimed.

All of the subsidies are implicit subsidies in the tax code. That is, they are provisions in the tax code that treat fossil fuels preferentially. The study was published in February 2013. So I’m fairly confident that updating for inflation since then would give a higher number.

On the the other hand, there’s an effect that goes the other way. The biggest single item (see his Table 5-1) is $13.9 billion over 10 years for oil drillers being able to expense, rather than depreciate, intangible drilling costs. But the 2017 tax cut permitted expensing for investments in short-lived assets such as machinery and equipment. So the preference for the oil industry suddenly fell. That would make the $13.9 billion for, say 2021, fall, possibly all the way to zero.

It is true that the expensing provision of the 2017 tax law was temporary. It starts to phase out this year and will be completely gone by 2016.

It might be useful for someone to do an update of Aldy’s study.

Note: There is an issue, especially for libertarians, about whether preferential tax treatment constitutes a subsidy. I’m always a little torn about this.

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Economics

Dow Jones, the S&P 500, and Nasdaq price forecast at the start of the Q4 earnings season

The Dow Jones, the S&P 500, and the Nasdaq weakened on a weekly basis as investors traded cautiously at the start of the Q4 earnings reporting season….

The Dow Jones, the S&P 500, and the Nasdaq weakened on a weekly basis as investors traded cautiously at the start of the Q4 earnings reporting season.

Next week, Procter & Gamble, Alcoa, United Airlines Holdings, Bank of America, Goldman Sachs Group, Union Pacific, and Netflix ​are among the companies scheduled to report quarterly results.

Investors will watch guidance carefully from these companies to determine if inflation will crimp profit margins or if costs can be passed through.

They will also pay close attention to the companies’ outlooks and how U.S. companies coped with staffing and supply-chain issues last quarter.

U.S. policymakers finally concluded that price pressures were not just transitory, and the U.S. Federal Reserve increased the reduction in bond-buying on a monthly basis from $15 billion to $30 billion.

Pulling off support programs is the first step towards tightening, and according to Fed Chair Jerome Powell, the U.S. central bank will consider three rate hikes in 2022. Kim Forrest, chief investment officer at Bokeh Capital Partners, said:

Higher interest rates could pressure the stretched valuations of tech stocks, so companies need to deliver impressive numbers in the coming weeks. The tech sector is trading at about 27 times earnings estimates for the next 12 months, near its highest in 18 years, compared to 21 times for the overall S&P 500.

The rising inflation represents a threat to the economy, while the prospect of renewed lockdowns and rising COVID-19 cases also made investors nervous.

The U.S. continues to fight with high numbers of new daily infections, leading to staffing issues across industries; investors have seen that the virus still has the ability to disrupt business.

S&P 500 down -0.30% on a weekly basis

S&P 500 (SPX ) slipped 0.30% last week, marking its second weekly drop in a row, and closed at 4,662 points.

Data source: tradingview.com

The strong support level stands at 4,500 points, and if the price falls below this level, it would be a strong “sell” signal.

DJIA down -0.88% on a weekly basis

The Dow Jones Industrial Average (DJIA) weakened -0.88 % for the week and closed below 36,000 points.

Data source: tradingview.com

The decline for 2022 thus far has come amid concerns about inflation and the COVID-19 pandemic, and the upside potential remains limited for the week ahead.

Nasdaq Composite down -0.25% on a weekly basis

Nasdaq Composite (COMP) has lost -0.25% on a weekly basis and closed at 14,893 points.

Data source: tradingview.com

If the price jumps above 15,500 points, the next target could be around 15,700, but if the price falls below the 14,500 support level, it would be a firm “sell” signal.

Summary

Wall Street’s three main indexes weakened on a weekly basis as investors traded cautiously at the start of the Q4 earnings reporting season. Investors will watch guidance carefully from companies to determine if inflation, staffing, and supply-chain issues will crimp profit margins or if costs can be passed through.

The post Dow Jones, the S&P 500, and Nasdaq price forecast at the start of the Q4 earnings season appeared first on Invezz.





Author: Stanko Iliev

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