Showing posts from 2020

Pending Home Sales Posts its Largest Ever Monthly Gain

Economic Report Monitor #50 June 27th, 2020
Another quiet day economic day opens the last week of June trading which has been bearish so far. Indexes ended their rebounds off March bottoms as uncertainty over a resurgence in cases rises to limit hopes that the health crisis would be over quicker than expected. That does not seem to be the case. However, the real estate market looks to have shaken off that disappointment. The National Association of Realtor's (NAR) pending home sales report released today increased 44.3% in May after two months of declines. This is the highest one month increase in the series history. Despite the steep incline, year-over-year contract activity was still down -5.1%.  The NAR's chief economist Lawrence Yun suggests that the robust rebound in the housing sector "could lead the way for a broader economic recovery." With the strong report, the forecasts for existing-home sales and new home sales for 2020 were increased.

The Dallas Fed Manufac…

Consumption Recovery Slow Despite Massive Increase in Disposable Income

Economic Report Monitor #49 June 26th, 2020

The week ends with a look at the report of personal income and outlays in May. On a month over month basis, personal income fell -4.2% after being boosted by stimulus checks in April. Disposable income fell with it, down -4.9%. The increase in cash from the stimulus and partial reopening of the economy allowed consumption to rise 8.2% in May. The largest bump was in durable goods consumption which grew 28.6% while services consumption was up just 5.4% and nondurable goods consumption was up 7.7%. However, inflation remains at lows from April with the general PCE price index at 0.5% and the more closely followed PCE price index (excluding food and energy) at 1.0%. YoY comparisons still put personal consumption down -9.8% despite disposable personal income up 8.2% in the same period. Here, services lag the most, down -14.3% from a year ago. It's clear that consumers' economic well-being is not the culprit for sluggish consumption, but in…

Initial Jobless Claims Still Over 1 million as Sluggish Employment Recovery Continues

Economic Report Monitor #48 June 25th, 2020

Jobless claims take the headlines again as elevated initial claims numbers continue to be reported. Last week 1.48 million initial claims for unemployment were filed, just a 60,000 drop from the week before. Continued claims also remained high, despite states reopening, with a 13.4% insured unemployment rate dropping just 0.5%. That means 19.522 million individuals are still claiming unemployment, just a 767,000 drop. Employment just hasn't recovered as most would hope with businesses still forced to keep costs low on restricted cash flow. There is also the concern that individuals receiving more in benefits than they would in wages might decide to delay their return to the workforce. These are just two factors playing into the sluggish recovery seen in jobless claims.
Durable goods new orders data was a bit more optimistic as the May report showed a 15.8% increase in new orders. Transportation equipment, an industry that was hurt badly, sa…

Uncertainty Remains High for Businesses as COVID-19 Cases Resurge

Economic Report Monitor #47 June 24th, 2020
On a mostly quiet day of economic indicator reporting, the stock market fell in response to an increase in COVID-19 effects in certain states. A resurgence in cases has injected new uncertainty into the economic outlook as the reopening process looks to be ineffective in staving off further infections. The hardest-hit states, Florida and Texas, have yet to see major strains on their respective healthcare systems, but if the situation isn't addressed, that the strain could return. 

Businesses reflected this increase in uncertainty in the June update of the Atlanta Fed's Survey of Business Uncertainty. The headline Business Uncertainty Index rose to 311.8 in June from 285.7 in May as respondents reported not knowing how sales, employment, and capital expenditures will look in the next 12 months. Uncertainty over sales growth continues to be a major concern for firms as it rises 397.3 to 440.0. If businesses can't be sure that revenues…

First June PMI Signals a V-shape Rebound

Economic Report Monitor #46 June 23rd, 2020
The first look of June manufacturing data was released today as IHS Markit reported its IHS Markit Flash U.S. Composite PMI. In true V-shaped fashion, the composite index shot up to 46.8, up from 37.0 in May and about 27 in April. The service and manufacturing index were equally as strong as both bounced from high 30's to high 40's as demand returned with the reopening of the economy in early June. However, some businesses noted that "renewals and requests for new business were historically muted." Employment contractions slowed as well as furloughed staff returned, but many businesses were still forced to cut labor costs. A recovering cost of business was also visible in rising prices paid and received by businesses as deflationary effects eased. Still, IHS suggests any economic expansion "will be prone to losing momentum due to persistent weak demand for many goods and services." It would not be entirely surprisin…

High Yield Downgrades, Default Rates Near Financial Crisis Level

Economic Report Monitor #45 June 22nd, 2020
The week starts quietly with just two major economic reports headlining on Monday. The Chicago Fed National Activity Index bounced back in May up to 2.61 after a steep drop to -17.89 in April. The rebound came on the back of a huge May jobs report where payrolls rose by over 2.5 million after the steep 20 million-plus drop in April. There was, of course, a footnote to the massive jobs gains as the Bureau of Labor Statistics admitted the job addition might have been inflated, so aggregate economic indicators like this and the Conference Board indexes may be inflated because of this. The CFNAI also saw an 0.89 bump from production indicators, an increase that could've been larger if industrial production didn't disappoint at up just 1.4%. Sales, orders, and inventories indicators contributed just 0.02 and personal consumption and housing indicators just 0.17. The latter category struggling as strong real estate is offset by weak personal…

Employment Data Lags While Rebound Continues

Economic Report Monitor #44 June 18th, 2020
Here we go again. Another jobless claims number breaks a million as 1.508 million initial unemployment claims were filed last week, down just 58,000 from the week before. In addition to another high initial claims number, continuing claims fell just 62,000, maintaining its level above twenty million at 20.544 million or 14.1%. Both trends contradict the surprise May jobs report and suggest the rebound seen in other areas of the economy has not been replicated in the labor market. In fact, the federal version of the Pandemic Unemployment Assistance program saw claims increase 66,063 in the week of June 13th after a fall of over 100,000 in the previous week.
The momentum in the jobless claims report differed from the Philadelphia Fed Manufacturing Survey which saw its headline business activity data jump 70.6 points to 27.5. The readings for new orders and shipments saw similar increases as both rose sharply out into positive territory. While jum…

Real Estate Demand Rebounds, but Is Housing Supply Lagging?

Economic Report Monitor #43 June 17th, 2020

A relatively quiet day in the market, the S&P 500 bouncing from gains to a -0.36% loss, saw just a few economic reports. Most of them continued to frame the real estate market that continues to signal its strength. MBA Mortgage Application index continued its rampage upwards as the composite index grew 8.0% with both purchasing and refinancing indexes rising 4.0% and 10.0%. Low-interest rates have certainly had an impact on the movement of this data point, but the consistent strength seen weekly likely points towards a resurgence in demand viable at cheaper borrowing prices. Single-family home demand has already seemingly recovered to pre-COVID-19 levels according to a CNBC chart.
Housing start data was also released as a set of indicators posted mixed results. Housing starts lagged the most up just 4.3% as single-family home starts stalled at 0.1%. Year-over-year the indicator is still off -23.2%. Housing authorizations and building permit…

Retail Sales Surprises, but Industrial Production Disappoints

Economic Report Monitor #42 June 16th, 2020
Some mixed economic reporting today continued to encourage volatile trading as indexes jump after a few days of losses. Making the headlines was a retail sales jump of 17.7% in May that beat expectations strongly. Industries that were most affected by the lockdown saw huge rebounds as reopening processes ramp up. Furniture store sales jumped 89.7%, clothing & clothing accessories store sales skyrocketed 188.0%, and sporting goods, hobby, musical instrument, & book store sales grew 88.2%. Food services & drinking place sales were up just 29.1% though as these non-essential businesses lagged. Businesses that didn't see a dip in demand remained cool in this report. Food & beverage store sales were up just 2.0%, health & personal care stores mostly flat at 0.4%, and general merchandise stores saw a bump of 6.0%. These numbers are mostly surprising because for most of May the lockdown was in effect with just the back end of …

Another Massive Jobless Claims Number Report Despite Active Efforts for the Economy to Reopen

Economic Report Monitor #41 June 11th, 2020

The market sells off on another large initial jobless claims number. Initial unemployment claims increased 1.542 million last week even though states have already begun the reopening process. The large difference in the jobs report number and the claims numbers speaks to the unpreparedness of the system to handle the mass forced layoffs. Continued unemployment claims fell again but only slightly. A drop of -339,000 takes the total to 20.9 million, just barely off its peak in early May. In a more optimistic tone, May 23rd data showed a -1.2 million drop in individuals claiming Pandemic Unemployment Assistance to 9.7 million. All eyes on continuing claims data (pictured above) to see if the labor market recovery will gain speed.
Following CPI data yesterday, the Producer Price Index (PPI) report came out for May. The broad index increased by 0.4% disguising some other volatile segments. Food goods saw a 6.0% increase, a trend reflecting the food …

FOMC to Hold Rates Low Through 2022 as Deflation Fears Linger

Economic Report Monitor #40 June 10th, 2020

It's the last day of the June FOMC meeting as the monetary leaders continue to fight against COVID-19's economic effects. Their opening statement admits that the disease has brought "tremendous human and economic hardship" despite the improvements from the initial calamitous impacts. The FOMC reaffirmed their commitment to keeping rates low until "the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals." Based on the economic projections, this commitment means rates stay near 0% all the way through 2022 as the Fed projects a -6.5% GDP contraction and 9.3% unemployment in 2020. Both doves and hawks spoke in unison on this decision with only two FOMC members seeing a Fed Funds rate above the 0.0-0.25% range in 2022.
In support of that dovish statement of the Fed, the May CPI report came out with deflationary data. For the month, overall CPI fell -0.1% with the…

JOLTS Report Echoes Rebound in Jobs, Small Businesses See Sales Recovery

Economic Report Monitor #39 June 9th, 2020
Another employment report comes out today, and while it's less popular and less current than the ones from last week, it's equally as telling. The Job Openings and Labor Turnover Survey (JOLTS) showed a decrease in separations as the labor market starts its rebound. Total separations fell -4.8 million in April after rising to over 14.5 million in March. Most of the drop there was a decrease in layoffs and discharges, about -3.8 million, especially in the accommodation and food services industry and retail. With the report lagging a month behind the jobs reports, it's optimistic to see improvement come a bit earlier than expected. However, job openings continued to decline falling below 2017 levels to 5.0 million despite the decrease in separations. It's likely that job gains in this rebound will be old positions being rehired and furloughed workers coming back from quarantine. Demand will probably not be able to sustain addition…

Stunning Jobs Report Might Not Be as Good as It Looks

Economic Report Monitor #38 June 5th, 2020
A huge jobs report closed out the week with a fantastic surprise as the Bureau of Labor Statistics reported employment rising by 2.5 million jobs in May beating expectations by a lot. The improvement was a result of reopening by some states as leisure and hospitality jobs saw a sharp rise. The unemployment rate fell 13.3%, down -1.4%, in a huge reversal of sentiment. Temporary layoffs saw a huge drop of 2.7 million as people were up to work after 16.2 million workers were temporarily unemployed in April. The labor force participation rate increased 0.6% to 60.8%, another trend that was reversed. The number of people employed part-time for economic reasons was still at it elevated level from March and February, 10.6 million, suggesting there is still a lot of weakness in the labor market due to restricted cash flow. Businesses want to keep people employed, but utilization is not high enough to support a lot of full-time workers.

Taken as it is, t…

Unemployment Claims and Cuts Slow But a Long Way From Normal

Economic Report Monitor #37 June 4th, 2020

Thursday brought with it another batch of employment data, and this indicator has been watched intently for the past two months. The Unemployment Insurance Weekly Claims for the last week of May produced another elevated number, 1.88 million, but lower in context of the COVID-19 outbreak. Falling below 2 million for the first time since March, the high unemployment claim number is likely more representative of the backlog of the unemployment system than anything else since several states have already started opening up. However, despite that fact, continued unemployment claims did jump slightly, increasing the insured unemployment rate 0.5% to 14.8%. This number will be closely monitored in June to gauge the progress of the recovery during reopening procedures.
Another report on unemployment was released by Challenger Gray & Christmas documenting the job cuts in May. While down 40.8% from April, the total of 397,016 was the 2nd highest month…

Manufacturers' Look Sluggish After Bearish PMIs and ADP Employment Report

Economic Report Monitor #36 June 3rd, 2020
After a quiet Tuesday, the middle of the week brings more COVID-19 economic data. The gamut of reports includes the non-manufacturing PMIs from IHS Markit and the Institute of Supply Management (ISM). Crucial data also was released for factories and energy with new orders and the weekly crude oil supply data. Finally, the Automatic Data Processing employment report brings a preview of the official Bureau of Labor jobs report on Friday.
On Monday, the manufacturing PMIs revealed a troubled industry that was just starting to see some relief but with respondents suggesting a rebound is likely to be sluggish. The non-manufacturing and service PMIs today mirrored that sentiment today. The IHS Markit Services index jumped to 37.5 in May after dropping to the record low of 26.7 in April. Firms continued to see muted demand with the shutdown lasting through the month. Foreign demand was especially slow as new business from abroad decreased at a "hi…

Two More Surveys Point to a Sluggish Recovery

Economic Report Monitor #35 June 2nd, 2020
The start of June continues with two major issues broaching the financial world forcing a hugely uncertain future for businesses across the country. Now almost three months old, the concern of the COVID-19 outbreak continues as active case counts cool, and reopening processes take their shape. However, markets have quickly shifted to digesting the sudden civil unrest caused by protests against the murder of George Lloyd by a Minneapolis police officer. Peaceful protests intertwined with pockets of looting in major cities continue into their second week. The stock market still rose with the S&P 500 up just over 0.8%. Other than conversations about the impact of these two increasingly economic issues, economic reporting was quiet with no marquee indicators in view. Nevertheless, other economic reports continue to describe the situation in place of them.

The Ag Economy Barometer from the Purdue Center for Commercial Agriculture was released tod…

Manufacturing PMIs Point to a Slight Recovery from Severe Contraction

Economic Report Monitor #34
June 1st, 2020
The start of a new month means two fresh new manufacturing PMI releases for May from IHS Markit and the Institute of Supply Management (ISM). The IHS report saw continued severe sluggishness in the sector despite a slight recovery to 39.8 from 36.1. Domestic and foreign orders were muted which forced employment lower on unused capacity. The foreign sales index decline was the second-fastest on record. The weakness in demand also led to a drop in prices marking the steepest decline in output charges in series history. While current conditions were already negative, expectations started to decline as optimism for restarting the economy begins to revert to pessimism. The continued enforcement of social distancing measures will likely endanger the speedy recovery for which firms first hoped. However. the worst appears to be over.
The ISM report showed similar dynamics in its cohort of the manufacturing industry. The composite index increased just 1.…

Mixed Economic Reports Leaves Sentiment Unclear

Economic Report Monitor #33
May 27th, 2020
Stocks jump again on Wednesday as another busy day of economic reports brings along more information about the economic effects of the COVID-19 outbreak. Meanwhile, central banks continue their fight against those economic effects as the European Central Bank (ECB) announces a new stimulus package worth as much as 750 billion euros ($825 billion). The bank's president, Christine Lagarde, also announced today that they expect output to drop 8-12% in the Euro-area in 2020. The sentiment seems to disagree with the momentum seen in stocks recently as the financial situation screams for a reality check.
MBA Mortgage Applications this week reflected the surprising new home sales number from yesterday. The Purchasing Index jumped 9.0%, building on a 6.0% gain the week before, to carry the Composite Index up 2.7%. The Refinancing Index stayed flat at -0.2% as no major move in interest rates inspired a shift in mortgage refinancing. So far, real esta…

Dallas Fed Survey Points to Less Economic Damage Than Expected

Economic Report Monitor #32
May 26th, 2020

An early week starts with a slew of economic indicators including some business activity surveys and real estate data releases. Stocks roared higher in the morning and throughout the day until the last two hours when some gains were lost. Overall, market technicals feel stronger after holding some key support lines this week. The COVID-19 crisis appears to be settling down, but uncertainties about reopening remain intact.

Two business activity-based reports were released today from the Chicago and Dallas Feds. The Chicago Fed National Activity Index, which is still on its April issue, revealed a massive drop from -4.97 to -16.74. This index reading blows past lows seen in previous recessions in 2009, 2001, and even before that. Seventy-nine indicators were negative in April with massive drops in production and income-related and employment-related indicators. The largest blows came from a -11.2% drop in industrial production which lead product…

Unemployment Rate Surges to Highest on Record

Economic Report Monitor #31
May 8th, 2020

The first full week of May closes with the anticipated April employment situation report. The report was consistent with the ADP report with a decrease of 20.5 million jobs seen last month. The jobs lost forced the unemployment rate to increase at the highest rate ever to 14.7%, up 10.3%. As expected, the number of unemployed persons rose by 15.9 million as closures forced workers to stay home, but the amount of those reporting being only temporary laid off rose by 18.1 million, something positive to take from the report. Overall, only 544,000 more people reported being permanently laid off, a number that is small relative to the total jobs lost. A number of individuals also reported less hours instead of total job loss with about 5 million saying they "work part-time for economic reasons."

Job losses were lead by the leisure and hospitality sector which saw 7.7 million jobs cut. Retail trade was a bit far behind, losing 2.1 million, …

Supplemental Employment Data Confirms Mass Layoffs

Economic Report Monitor #30
May 7th, 2020

After the APD employment report yesterday, some additional employment data was released before the market opened. Earliest was the Challenger Job Cut Report which produced what one would expect. April job cuts jumped 202% to 671,129 totaling 1,017,812 for the year. Of the cuts announced last month, 94% of those were specifically attributed to COVID-19. The sector breakdown is also pretty expected as the Entertainment/Leisure sector accounts for a large majority of the layoffs. Retail and Service sectors were not far off as a large amount of those stores are also designated non-essential.

One sector that has not let closures affect the is the Education sector which has only seen layoffs increase from 7,069 in the first four months of 2019 to 9,808 in the first four months of 2020. A majority of schools in the United States running online with limited activity at campuses, but that hasn't forced the academic workforce to shrink. It seems that…

April Job Losses Top 20 Million in Early ADP Employment Report

Economic Report Monitor #29
May 6th, 2020

The headline economic report today was the ADP National Employment report with the preview of the official Department of Labor. The headline data point reported a job loss of -20.2 million in April. As expected, a large amount of those jobs, over 16 million, fell off of the service sector. The two largest declines in the industry were leisure/hospitality, down -8.6 million, and trade/transportation/utilities, down -3.4 million. Nonessential closures and a slowdown in trade are most likely the blame there. Businesses of all sizes shrunk their workforces as well. Large companies shed the most at -9.0 million lost, and that was closely followed by -6.0 million. It's worth noting that -6.0 million in small business employment translates to a lot more businesses feeling pain and most likely shutting down. Larger corporations, like the public companies that have announced job cuts, are likely only seeing a sharp decrease in capacity utilization w…

Services Clobbered by Closures

Economic Report Monitor #28
May 5th, 2020

Two days after IHS and ISM released reports on the weakening of manufacturing, the organizations have done the same for the service (and non-manufacturing) sector. The IHS Markit version of the report saw "unprecedented contractions in output, new business and employment" as the index fell from 39.8 in March to 26.7 in April. The reduction in the workforce was the largest seen in series history. However, there was a notable amount of responses that said they had furloughed workers instead of laying them off with hopes of improvement on the horizon. The drop in capacity in response to the drop in demand has lead to a drop in input costs as wages and commodity prices fell. As expected, face-to-face businesses felt the pain the most.
The Insititute of Supply Management's (ISM) report saw similar pain with the index falling from 52.5 to 41.8 in April. Business activity fell -22.0 pts to 26.0, new orders fell -20.0 pts to 32.9, and emp…

New Orders and Investor Sentiment Cools

Economic Report Monitor #27
May 4th, 2020

Stocks continued the bearish fall on Friday at the start of the week as the COVID-19 infections stall at about 2-3% in the US. Along with only small signs of improvement, new factory orders data was released and continued to frame the economic slowdown. Manufacturers saw a drop of -10.3% in new orders as demand for durable goods crumbled. Declines in the industry were highest as transportation equipment, down -41.3%, dragged it down -14.7%. Other sizeable drops were seen in Primary metals, down -2.8%, and mining, oil field, and gas field machinery, down -7.2%. Shipments also fell -5.2% with transportation equipment and petroleum industries weighing down the overall index.

The final indicator of the day was the Investor Movement Index from TD Ameritrade. In April, the index fell -6.25% to 3.9 as exposure to equity markets dropped. However, overall clients were net buyers for the 2nd month in a row. Buying was heaviest in weak sectors like Indust…

Manufacturing Sours, Construction Spending Stable

Economic Report Monitor #26
May 1st, 2020

On the last day of the week, two PMIs from IHS Market and the Institute of Supply Management make their appearances. IHS's report on the manufacturing sector saw a drop from 48.5 to 36.1 in April, just above 2008-2009 levels. The figure was also slightly lower than the "flash" figure reported earlier this month. Output saw the steepest decline in the series history as domestic and foreign new orders plummeted. The excess capacity lead to employment falling to March 2009 levels. In another first, firms were pessimistic on outlook for the first time in the series history (since July 2012). The decline in employment also came with a decrease in firm buying activity resulting in input costs falling as well (this was also exacerbated by low commodity costs).

The ISM Manufacturing Report on Business reported a 41.5 reading for April just 15 minutes after the IHS report. New orders, production, and employment all plummeted to just over 2…

6th Straight Week of 3 Million+ Jobless Claims

Economic Report Monitor #25
April 30th, 2020

It's yet another Thursday, and that means jobless claims for the last week of April. Initial claim applications were still bustling, up 3.84 million, just above the first week of 3 million+ initial claims in March. Insured unemployment grew to 12.4%. The increase in total insured unemployment was a bit slower than the pace of the previous week's increase in initial claims suggesting some people coming off unemployment in addition to people coming on. Michigan remains the state with the highest insured unemployed at 21.8% as durable goods spending takes a hit troubling the local auto industry.

Those jobless claims are looking to fill the gap of a -2.0% drop in personal income as reported by the Bureau of Economic Analysis. That drop was mostly caused by a decrease in wages and salaries, down -3.1% as businesses are forced to furlough and layoff workers. The loss in income contributed to a personal consumption expenditures drop of -7.5…