CARY, N.C. -

As if dealerships didn’t have enough headwinds just in contending with tight inventory and high prices, Cox Automotive chief economist Jonathan Smoke spotted a development he said hasn’t been seen in three decades.

What prompted Smoke to make the assertion on Monday was what surfaced on Friday as the University of Michigan said, “Consumers reported a stunning loss of confidence in the first half of August.”

That statement came as a result of the initial August reading of the Index of Consumer Sentiment, which tumbled from 81.2 in July to 70.2 so far this month. That’s a 13.5% sequential decline and decrease of 30% from February 2020.

Smoke also pointed out that the index now sits at the lowest level in a decade

Richard Curtin, who serves as chief economist for the Surveys of Consumers at the University of Michigan said in an online post that only six times has the index decline this much. Each time, it’s been connected to sudden negative changes in the economy, according to Curtin.

Curtin indicated the only two larger decreases occurred during the economy’s shutdown in April 2020 (down 19.4%) and the Great Recession in October 2008 (down 18.1%).

“The losses in early August were widespread across income, age, and education subgroups and observed across all regions,” Curtin said. “Moreover, the losses covered all aspects of the economy, from personal finances to prospects for the economy, including inflation and unemployment.

“There is little doubt that the pandemic's resurgence due to the Delta variant has been met with a mixture of reason and emotion,” he continued. “Consumers have correctly reasoned that the economy's performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end.

“In the months ahead, it is likely that consumers will again voice more reasonable expectations, and with control of the Delta variant, shift toward outright optimism. Consumers’ reaction to Delta’s modestly higher precautionary measures indicates the difficulty of producing optimal policy responses,” Curtin went on to say.

In his latest “Smoke on Cars” blog post, the Cox Automotive expert looked to extrapolate what the University of Michigan found and what it might mean at your showroom.

“Both underlying gauges of current conditions and future expectations declined with future expectations declining the most. Consumers saw buying conditions for vehicles decline again to the lowest level in at least 30 years,” Smoke said.

The consumer sentiment reading arrived after the Federal Reserve released consumer credit data for July last Wednesday. Curt Long, chief economist and vice president of research at the National Association of Federally Insured Credit Unions (NAFCU) painted a somewhat murky scene about those trends even though at first glance they might be rosy.

“On a seasonally-adjusted basis, consumer credit grew at the strongest rate in years once again,” Long said. “Revolving credit grew at its fastest pace in recent history and twice as fast as the previous month.

“Trends in revolving debt can be difficult to parse; growth may reflect increased spending as consumer confidence is restored, but it may also reflect emergency spending by households still suffering through job loss and nearing the end of enhanced unemployment benefits,” he added.