Showing posts from April, 2020

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…

The Fed Looks to Bolster Confidence in Markets with Promise to Use "Full Range of Tools"

Economic Report Monitor #24
April 29th, 2020

Midway through the last week of April, investors got a good look into the COVID-19 economy with the first estimate of 2020 Q1 GDP and an FOMC announcement on top of other smaller reports. Markets opened higher and stayed higher all-day. Companies continued to release earnings seeing major declines in revenue and profits including Boeing which saw a $641 million loss. This trend was supported by the April version of the Atlanta Fed's Survey of Business Uncertainty which saw expected sales growth plummet -53.7 pts to -0.3. Employment and capital investment expectations also fell but not as quickly. However, if sales uncertainty prevails for some time, cash flow problems could bleed into employment and capital investment pessimism.

Earlier in the morning, the first GDP estimate for 2020 Q1 was released at -4.8%, most likely the beginning of a recession caused by COVID-19. Most notably, the driver of GDP growth in the past, personal consumpt…

Retail Inventories Increase and Exports Plummet as Lockdown Stifles Demand

Economic Report Monitor #23
April 28th, 2020

A few advance economic indicators came out today. The report, which is usually quiet, showed some movement should be expected in future March reports for international trade and wholesale/retail inventories:

The trade deficit grew 7.2% in March according to an initial estimate. Exports fell -6.7% as the economy started its lockdown towards the end of the month. The largest decrease was in auto vehicles which dropped -17.8% as demand for durable goods dried up as seen in other reports. Industrial supplies, including petroleum and petroleum products, fell -7.5%. Food, feeds, and beverages, likely deemed essential, saw only a -0.1% drop. Imports of vehicles also saw a large drop at -9.0%. Foods, feeds, and beverage imports were unsurprisingly higher up 3.4%.Wholesale inventories saw a drop of -1.0% while retail inventories grew 0.9% in March. In a trend similar to the trade data, durable goods grew 0.1% for wholesalers and motor vehicles and par…

Texas Manufacturing and Energy Firms Business Activity Plunges in April

Economic Report Monitor #22
April 27th, 2020

The last month of April opens with just one economic report from the Dallas Federal Reserve. Another April manufacturing survey relays the economic slowdown once again with general business activity down to -73.7 on large drops in production (-20.0 to -55.3), capacity utilization (-21.1 to -54.5), new orders (-25.7 to -67.0), and shipments (-22.8 to -56.6). Most inventories were flat with 52.2% reporting no change. Prices paid and received were also lower but more stable than anything; in both categories, more than 65% of respondents reported no change. Current capital expenditures dropped significantly, down -20.0 to -54.3. This is far different from the forward look at capital expenditures which actually increased 0.1 to -19.7. Similarly, views of other categories saw mixed changes with growth in new orders, shipments, and employment. These results continue the trend of outlook responses being much more optimistic than current responses.


An Expected Durable Goods Drop Closes Out a Quiet Trading Week

Economic Report Monitor #21
April 24th, 2020

The stock market appears to have entered a bit of a lull after some intense volatility. The Dow drops 2% after a mostly bearish week is offset by modest gains on Friday. Both bears and bulls now sit looking at a consolidating trend where momentum could build in either direction. Shares of the popular S&P 500 ETF (SPY) closed down -1.32% for the week but with volume falling to its lowest level since the near-term bottom around $225. While investors lie and wait for the next move, economic data gauging the damage to the economy since the lockdowns began continues to be released.

Durable goods were always going to be impacted heavily by the lockdown since several of the segments are considered nonessential. New orders for March fell -14.4% with shipments slowing -4.5%. The largest drop was seen in transportation equipment dropping -41.0% with motor vehicles and parts down -18.4% and nondefense aircraft and parts falling -295.7%. The large d…

Manufacturing Outlook Improves in Kansas City as Stimulus Looks Effective

Economic Report Monitor #20
April 23rd, 2020

It's Thursday, so that means another jobless claims report came out detailing the crash in employment that the lockdowns have caused so far. Initial claims last week grew 4.43 million as the backed-up unemployment system continues tackle applications. Insured unemployment rate is at 11.0% and will add more next week with the new initial claims. It does look like there is a bottom in new claims which probably would have been deeper if the system didn't back up like it did. In total since March 14th, 26.5 million initial claims have been reported which suggests 16.2% of the labor force is seeing an impact from the lockdown. Major equity indexes still closed in the green.

Two more PMIs came out today as April reports start to make their appearances. The IHS Markit Flash US Composite PMI was quite striking. New series lows came in for the Flash US Composite Output Index at 27.4 and the Flash US Services Business Activity Index at 27.0. B…

Freddie Mac Sees Rates Lower for Longer as Lending Activity Cools

Economic Report Monitor #19
April 22nd, 2020

Midway through the week, markets stabilize slightly after trading in commodity and equity markets open the week in volatility. Economic indicators reflect that as well as a couple of quiet reports come out during the pause. The volatility feels in no way over though as policymakers start to ponder the reopening process. These plans for easing the lockdowns will come on the backs of a fresh new stimulus bill passed through the Senate already mainly focused on bolstering the Paycheck Protection Program.

The first report this morning was another week of MBA Mortgage Applications. The composite index came in at a flat -0.3% as the Purchasing index grew 2.0% and the Refinancing index fell -1.0%. Mortgage rates sit just above the lows with the 15-year fixed rate at 3.22% and the 30-year fixed rate at 3.62%, up 24 basis points and 17 basis points off the 52-week lows. Data will probably start to trend downward as homebuyers see their economic prosp…

Housing Supply Replenished as Real Estate Activity Disrupted

Economic Report Monitor #18
April 21th, 2020

Another quiet day of economic reports sees just March data for existing home sales released. The National Association of Realtors (NAR) reported an -8.5% drop in existing home sales. The drop represents significant cooling in the market, exacerbated by the COVID-19 outbreak, after year-over-year growth peaked in December 2019 with a gain of over 10.0%. The stalling of sales also marks a rebound in the housing supply that was shortening at the end of 2019 and the beginning of 2020. Despite the drop in existing home sales, the median price still increased by 8.0% from February to $280,600.

The NAR also reported on a flash survey taking the economic pulse of the real estate market conducted on April 12-13. The survey asked property managers and individual landlords about issues with tenants paying rent. About half, 46% of property managers and 59% of individual landlords, saw no issues with payments, and a majority of those who did see issues r…

Negative Oil Prices Confirm a Substantial Loss in Demand as a Result of COVID-19

Economic Report Monitor #17
April 20th, 2020

A quiet day of economic reports was overshadowed by a historic one in energy markets. As the May contract of WTI crude oil rolled over today, price collapses through $0 to close at a stunning low of -$37.63. While supply concerns remain mostly understood, this decline helped underline the magnitude of the drop in demand that has been a result of the coronavirus outbreak. Beyond trading of the May contract today, June futures remain stable just above $20 a barrel but are threatened by the extremity of the May contract's close.

The consumption levels as indicated by the EIA's weekly estimates of product supplied show just how bad the demand crisis is. The trailing 4-week average of crude oil product supply tanked to 16.4 million b/d, almost 4 million b/d lower than a year ago and almost 5 million b/d lower than the 2020 peak of 21.1 million b/d. Product supplied data this low have not been seen since July 1992. Finished motor gasoline …

First Month of Lockdown Sees Unemployment Claims Rise 22 Million

Economic Report Monitor #16
April 16th, 2020

The 4th week of jobless claims brings more pain as employment sees another 5.25 million jobs shed last week. The total now reaches 22 million for the past four weeks with insured unemployment rising to 8.2% or 11,976,000. It's very likely that insured unemployment rate will reach double digits next week as the newest round of claims is added into the total. Was the previous week of 6.6 million the peak of jobless claims additions? It certainly feels like the lockdown can't get worse, and with conversations of reopening the economy starting, businesses are more likely to open than close. However, with the current state unemployment systems overloaded, there are still plenty of people waiting to get access to benefits. Once those pass through, there should be a flattening in weekly claim growth.

Census residential construction data show a steep -22.3% drop in housing starts in March as construction plans are halted. New permits also dr…

New Data Points Show Economic Devastation in April

Economic Report Monitor #15
April 15th, 2020
Midway through April, a slew of data points was introduced updating on the devastation spreading across the economy. Markets fell today as well in what looked like one of the first bearish trading sessions in awhile. Oil production cut hopes also unsuccessfully wielded off further declines in the futures market as front-month prices play with the $20 level. Meanwhile, the COVID-19 outbreak continues at pace showing only minor signs of slowing. It feels inevitable that pessimistic economic reports and earnings events will ultimately quash optimism in the market.

MBA Mortgage Applications index was released in the morning and did little to startle the early risers. More as a result of low rates, the Composite Index rose 7.3% as the Refinancing Index grew 10.0% to offset the -2.0% drop in the Purchase Index. While the movement might easily be written off as a reaction to the prevalence of low interest rates, it is slightly comforting to see som…

Import, Export Prices Show Collapse of Trade

Economic Report Monitor #14
April 14th, 2020

After a Monday with no economic releases, Tuesday rolls on relatively quiet with just a release on import and export prices in the month of March. Stocks continued to rise with a slight decline on Monday offset by a larger move upward on Tuesday. Optimism from policyholders continues to drive the bullishness while bears wait for economic data more representative of the effects of the lockdown to be released. It seems the financial world is at the brink of a collision between expectations and reality. Both are filled with heightened levels of uncertainty in uncharted territory.

As seen in today's import/export price report, pricing in trade is likely to become soft with foreign demand being subdued due to travel lockdowns and lower demand from domestic business activity lowering. The World Trade Organization (WTO) released its new trade forecast for 2020 on April 8th after digesting the initial reactions to the COVID-19 outbreak, and it e…

CPI Data Shows Initial Effects of Oil Price Drop

Economic Report Monitor #13
April 10th, 2020

It's Good Friday, and markets are taking a respite from roller coaster ride. Economic reports were sparse with the exception of the March CPI report which reported the largest monthly decline since January 2015. The severe slowing was mostly caused by the precipitous decline in energy CPI index which was down -5.7%. Gasoline and fuel oil saw the largest declines at -10.5% and -13.7% as a combination of an increase in supply and a sudden decline in demand sent consumer fuel costs lower. Energy services were only mostly flat at -0.5%.

The other categories that saw CPI declines were sensitive to the demand shock resulting from the lockdown. Apparel saw a drop of -2.0%, and new vehicles were down -0.4% as nonessential businesses were shuttered. Transportation services fell an abrupt -1.9% consistent with the severe drop in traveling both locally and beyond state borders. The airline fare index alone dropped -12.6% following an initial drop o…

Three Week Unemployment Claims Total Reaches 16.8 Million

Economic Report Monitor #12
April 9th, 2020
The third week of jobless claims since the beginning of the COVID-19 lockdown began brought another fresh round of jobless claims. Just below the revised level of 6.87 million from the week before, this week 6.61 million individuals filed for unemployment benefits. The three week total now becomes 16.8 million or about 11% of the workforce after the three largest unemployment benefit claims in the history of the indicator. Bank of America sees the job cutting continuing as total job cuts could reach as much as 20 million with a peak unemployment rate of 15.6%. These numbers came at the same time as the Fed introducing new funding for small and mid-sized businesses totaling $2.3 trillion in an attempt to bridge the gap in funding during the lockdown. Markets continue to take the unemployment numbers in stride as equities rise, suggesting these massive unemployment claims numbers are priced in. Only time will tell if expectations are met.

The M…

US Oil Production Sees Steep Drop

Economic Report Monitor #11April 8th, 2020

After Russia and Saudi Arabia stormed the oil markets with announcements that they would flood the market with crude oil. Prices tanked touching the $20 mark before briefly recovering on hopes that a deal could be reached to curb the massive amounts of potential production. The devastation in crude oil futures markets suggested that US production would be reduced as shale production looked to be unprofitable at the new levels. The April 8th weekly supply estimates finally revealed a sharp cut of 600,000 b/d in US production to 12.4 million b/d. The cut finally came after some data collection for the April version of the Short Term Energy Outlook allowed for updated production estimates. The new estimate likely fueled EIA forecasts of WTI spot prices through 2021 which center around $40 after 2020 spot prices close just under $30. Of course, there is a lot of volatility currently implied by options markets, but more so on the upside than the d…

More Data Confirms Small Business Stress

Economic Report Monitor #10April 7th, 2020
There's been a lot of discussion about small businesses being extra sensitive to the economic effects of COVID-19. The National Federation of Independent Business (NFIB) brings us the latest in its Small Business Optimism Index. The index fell 8.1 pts to 96.4 pts in March making it the largest decline the survey has ever seen. NFIB Chief Economist William Dunkelberg describes recent small business economic data well as he says, "it’s hard to say what the severity of the disruption will be, but we do know they’re feeling the urgency." The abrupt drops are exhibiting how quickly the lockdown effects are taking, but there is still a lot of uncertainty about how bad it will be and for how long.

Expectations for the economy and real sales were the fastest to fall, down -17 pts to 5 pts and -31 pts to -12 pts respectively. With the expectations of lower sales, most small businesses are not making plans to increase inventories as curren…

Consumer Expectations Sour in Fed Survey

Economic Report Monitor #9
April 6th, 2020

A quiet day in economic reporting makes way for a week that US leadership says could be the "hardest, saddest" week of some Americans' lives. With the COVID-19 outbreak expected to peak, the aim continues to be to reduce the mortality rate as new case growth rates finally start to subside. Wall Street seemed to share that optimism as stocks rose on the day with all three indexes in the green. However, uncertainty remains in a lot of facets of life whether it be investors in the market or consumers in lockdown.

The Federal Reserve's March edition of the Survey of Consumer Expectations provided some insight into the initial economic impact on Main Street. Most individuals didn't see a major change in inflation over the next 12 months with the median expected value at 2.5%. However, there was more fluctuation in responses that featured lower low estimates and higher high estimates. Home price and gas price expectations, thin…

Jobs Report Confirms Employment Devastation

Economic Report Monitor #8
April 3rd. 2020

After two weeks of troubling unemployment benefits reports totaling 9.9 million, the jobs report for the month of March is released. The Bureau of Labor Statistics saw total nonfarm payroll employment fall by 701,000 in March shooting the unemployment rate up 0.9% to 4.4%. Overall, the number of unemployed persons rose by 1.4 million to 7.1 million. That number was mostly boosted by temporary layoffs as those increased from 900,000 to 1.8 million while permanent job losses increased only 177,000 to 1.5 million. This is an important distinction as more temporary than permanent layoffs should support a speedier recovery. Together with a large increase in temporary layoffs, part-time employment was up 25%, or 1.4 million suggesting there may be some relief for workers if a structural shift occurs between industries that are shut down and others that are seeing surging demand. Another interesting thing to note about the March jobs report is the ci…

Unemployment Doubles and Job Cuts Triple

Economic Report Monitor #7
April 2nd, 2020

It's been a week since the last jobless claims number and we're back again to assess the second round of damage. The new report saw new claims double from up 3.3 million the previous week to up 6.6 million this week. Stay-at-home orders have hit most of the country, and most non-essential businesses have been told to take a hiatus to encourage social distancing. Interestingly, this measure of employment that will guide initial observations of unemployment did little to affect equity markets which traded higher on the day. Since this data point is notably important in indicating a recession, some would assume it to be market moving. However with the COVID-19 outbreak stalling the economy, expectations have already been adjusted to account for the inflated numbers that the indicator will show due to the government ordering furloughed workers to use unemployment as a way to replace lost income for the time being. Jobless claims will proba…

Small Businesses Weigh in ADP Employment Report

Economic Report Monitor #6
April 1st, 2020
April and the second quarter starts with a slew of reports reviewing the month of March including two more PMIs and a first glimpse at a jobs report. As economic data rolls in, the comparisons of the COVID-19 economic slowdown and the 2008 financial crisis will populate analyst comments. As far as intensity and abruptness, what occurred 12 years ago is the only phenomenon that can help guide through what might happen today. Because of the high level of uncertainty related to a public health crisis with solutions absent in the near future, forecasts of the magnitude and length of a slowdown can only train on 2008-2009 data so much. This is evident in the extremely large stimulus package in the US and across the globe in some ways dwarfing policymakers' responses to the global financial crisis. Treasury Secretary Hank Paulson said of the Fannie Mae and Freddie Mac crisis that, "if you’ve got a bazooka, and people know you’ve got it, you…