Showing posts from June, 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.…