Showing posts from March, 2020

Will a COVID-19 Real Estate Contraction Look like 2008?

Economic Report Monitor #5
March 31st, 2020

The last day of March marks the end of the first quarter of 2020. Equity markets suffered as an 11 year bull market run comes to an end. The major indexes record major losses: DJIA down -22.07%, S&P 500 down -19.15%, and NASDAQ -13.42%. Crude oil markets are even more in a frenzy as COVID-19 shutdowns are likely to limit demand growth while the Saudis and Russians pledge to increase production in a fight with US shale. WTI futures are down over -66% on the year so far with Brent Crude futures not far behind at close to -60%. Overall, commodities were hit hard with the Bloomberg Commodity Index down -23.53% obviously anchored down by energy commodities. 
What has yet to be seen is deterioration in real estate data as a lot of indicators lag the more up real time financial markets. The S&P Corelogic Case-Shiller Index is no different as it released its January 2020 reading this morning. The mostly ignored report showed modest growth in …

Dallas Manufacturing Dives in March

Economic Report Monitor #4
March 30th, 2020

A new week opens as March closes out with almost 130,000 world cases more than market close on Friday. As infection rates maintain pace, Italy and Spain surpass China in total cases and have the two highest death rates per million. Economic policy responses continue to be introduced as economic data reveals the first bits of damage.

The second Federal Reserve March manufacturing survey reported dire numbers this morning with a drop in the production index equivalent to 2008. Only 0.4% of respondents described general business activity as improving while over 70% described it as worsening. This is the lowest reading ever. New orders and shipments were crushed as well as manufacturing appears to have halted. Finished goods inventories appearv relatively stable though with the measure coming in at -6.5. Employment fell sharply to -23.0, but was mostly stable as 71.8% of respondents citing no change. Employment is likely to lag production and ord…

Consumer Sentiment Tanks While Personal Income Survives

Economic Report Monitor #3
March 27th, 2020
A quiet Friday closes out another tumultuous week in global markets with personal income and outlays for the month of February and consumer sentiment. Personal income came in at 0.6%, the same as January, once again dodging and effects from COVID-19. Personal expenditure was slightly muted at 0.2% but not abnormal. Services continued to be the strong underlying sector of the economy with service consumption up 0.4% while good consumption was down -0.3%. For 2019 Q4, goods consumption increased 0.6% while service consumption was up 2.4%. Price indexes stalled at 1.8% annual growth after a 0.2% uptick in January. Like consumption data, services continued to heat up at 2.5% while goods were only up 0.2%. It's likely goods saw some initial sluggishness because of the globalization of those industries. Services will see a large hit in March. Overall, the headline data in the personal income report was mostly unimportant given the noise about t…

Unemployment Claims Skyrocket as Expected

Economic Report Monitor #2 March 26th, 2020
From ABC News
The market awoke to unemployment claims quoted at about 3.3 million in the last week. Visually, the chart looked daunting as the number dwarfed previous data points which trended around 230,000. In fact, the 3.3 million number is the largest in the indicator's history. Despite all those things, it wasn't unexpected and fell just about in the middle of the estimates from major financial institutions. Bank of America (3.0 million), Morgan Stanley (3.4 million), and the Economic Policy Institute (3.4 million) quoted figures very close to reality. The fact that three estimates were close to hitting the mark on a weekly economic indicator suggests there may be less uncertainty around the economic effects of COVID-19 than one may believe. The markets took this bullishly and rallied.

In another bid to curtail uncertainty, Wells Fargo released an update to their US economic outlook as they digest the acceleration of new cases in …

Market Moving Jobless Claims Number on Deck

Economic Report Monitor #1
March 25th, 2020

Economic reporting took a backseat to policymaking as the Senate announced the completed stimulus deal being completed late Tuesday night, early Wednesday morning. The package worth about $2 trillion will provide liquidity for companies as they see gaps in revenue and economic relief payments for most Americans below a certain economic threshold. This should ease the pain of economic indicators soon to be released.

Mortgage applications saw a large double-digit drawdown last week. The composite index was down -29.4% weighed down by another double-digit drop from refinancing. Mortgage rates are off the near-term lows (52-week lows for 30-year at 3.52%, 15-year at 2.95%) but look to remain near there for the time being. That being said, there shouldn't be another rush to refinance as consumers are going to be more conservative during the current turbulence. They also have some time to move. Interesting to note, new 48-month new car loans re…

How a Pandemic Became a Global Financial Crisis

On March 18th, 2020, the US Congressional Research Service (CRS) issued a report briefly summarizing its forecasts for the economic effects of COVID-19. The disease, originating in the Wuhan province of China, has sent the world in a panic as its high transmission rate and mortality rate threaten the global population. The response to the disease, social distancing and temporary closing of economies, will pose a threat to already feeble global growth.

The Organization for Economic Cooperation and Development (OECD) has noted these effects in a downward revision of global economic growth. In the best-case scenario, where the effects of the virus peak in Q1, growth in 2020 will experience a relatively small drop of -0.5 percent to 2.4 percent for the year; however, if the virus effects peak later, the drop could be as much as -1.5 percent to 1.4 percent. Of course, this has caused panic in financial markets as investors traded equities volatilely and crowded into bonds sending the 10-ye…

Coronavirus Economic Impact, Wells Fargo Perspectives

Over the past month, the coronavirus has taken the world by storm. First appearing in the world's largest economy, the virus grew rapidly, eventually stalling activity in Chinese cities with populations in the millions. Until recently, the threat has remained there, but now with infections sprouting in every continent, concerns that the spreading of COVID-19 could turn into a pandemic. Assessing the economic impact will be paramount for businesses and goverments who want to reestablish certainty. Wells Fargo is one of many major organizations trying to bring its own economic perspective to the situation. In several pieces over January and February, it has sought to bring its own perspective to coronavirus economic developments.

Some of the best coverage has come from Wells Fargo which has published some pieces on how the coronavirus could disrupt markets. A January 22nd piece started a trail of research when the virus had infected about 400 individuals across 6 different countries…