Week of June 8th, 2020 in Review
Unemployment remains a sobering reality for millions of people across the country, as another 1.5 million people filed claims for the first time during the week ending June 6. While this was a decline from the previous week, it does point to a staggering 16.7% unemployment rate, when considering the number of new claims, continuing claims and the amount of people in the labor force.
The Fed held their regularly scheduled Federal Open Market Committee meeting and as expected kept the benchmark Fed Funds Rate at zero. The Fed noted that they expect very little inflation this year, which is typically a good sign for home loan rates, but they also had some sobering forecasts for GDP and unemployment, as noted below.
Right on cue, the Consumer and Producer Price Indexes for May confirmed inflation remains tame due to the lack of pricing pressure.
According to the Bureau of Economic Research, the US economy was already declining
and we were already in a recession towards the end of February, before the pandemic began. While COVID-19 has accelerated the decline, this could also hopefully mean we will come out of this downturn faster as well.
Lastly, on a positive note, small businesses were feeling more optimistic about the future in May, per the National Federation of Independent Business small business optimism index, which increased from 90.9 to 94.4. Plans to hire, capital spending and plans to increase inventory all rose, as did those who expect a better economy and higher sales. NFIB’s Chief Economist Bill Dunkelberg said, “It’s still uncertain when consumers will feel comfortable returning to small businesses and begin spending again, but owners are taking the necessary precautions to reopen safely.”
Initial Jobless Claims Remain in the Millions
Another 1.5 million individuals filed for unemployment benefits for the first time during the week ending June 6, which was in line with estimates. California (+258K), Georgia (+134K) and Florida (+110K) once again posted the largest gains.
Continuing claims, which measure people continuing to receive benefits, decreased by 339,000 to 20.9 million. This figure is backwards looking, so when we add the following two weeks of initial claims, there are now roughly 25 million individuals receiving benefits.
When we factor in the number of new claims, continuing claims and the amount of people in the labor force, we estimate there to be a 16.7% unemployment rate currently. This figure is close to the Bureau of Labor Statistics number that was reported in the May Jobs report released on June 5 when taking the misclassification into account. Remember that the BLS unemployment rate was reported at 13.3%. However, without the misclassification error, they said that the unemployment rate would have been 3% higher, or 16.3%.
In addition, when we try to estimate how many new jobs the Paycheck Protection Program has temporarily created, we think that the unemployment rate could be closer to 20% without it.
The Fed Sings a Sobering Tune
Fed members held their two-day Federal Open Market Committee meeting Tuesday and Wednesday and left the benchmark Fed Funds Rate unchanged at zero. The Fed also said that they expect the Fed Funds Rate to remain at zero through 2022, with Fed Chairman Jerome Powell saying, “We’re not even thinking about raising rates.”
The Fed also noted that they will continue to purchase Mortgage Backed Securities and Treasuries at current levels, meaning they don’t plan to taper those purchases any further.
However, the Fed’s forecasts were a bit eye-opening and led to a sell-off in stocks on Thursday. They projected a decline of 6.5% in GDP this year, followed by a 5% gain in 2021 and 3.5% gain in 2022. Note that if GDP does drop as predicted in 2020, we really need to see an 8% gain to make it all back.
The Fed’s unemployment rate forecasts were also somber, calling for 10% in 2020, 7% in 2021 and 5% in 2022 … meaning that unemployment may stick around longer than many expect.
Lastly, the Fed predicts there to be no inflation in 2020, around 1.5% in 2021 and less than 2% in 2022. While this points to a slow economy, it is a good sign for lower home loan rates because inflation reduces the value of fixed investments. This includes the Mortgage Bonds to which home loan rates are tied.
Speaking of Inflation
Inflation on the consumer level came in at -0.1% in the month of May per the Consumer Price Index while the year over year reading decreased from 0.3% to 0.1%. Core inflation, which strips out food and energy prices, dropped by 0.1% from April to May and from 1.4% to 1.2% when compared to May of last year. Again, this data speaks to a soft economy with no pricing pressure.
Within the report, it’s interesting to note that rents of a primary residence dropped from 3.7% to 3.5%, showing that there is less demand and a lack of pricing pressure for rents. This makes sense with people moving out of city living and into the suburbs, which data in the HousingWire survey noted below also confirms.
Meanwhile, the Producer Price Index (PPI), which measures wholesale inflation, was up 0.4% in May, higher than the expected 0.1% estimate. On an annual basis, PPI came in at -0.8%, which was better than the expected -1.1% loss. The 12-month reading in negative territory again speaks to the lack of inflation we’ve been seeing. Core PPI, which strips out food and energy prices, did decrease by 0.1% from April to May and from 0.6% to 0.3% annually, which was in line with estimates.
Of Note in Housing…
CoreLogic’s Home Equity Report for the first quarter of 2020 shows that homeowners gained 6.5% in equity the past year. What’s more, the average homeowner has gained $106,000 since the first quarter of 2010. Negative equity has also significantly improved, down from 26% in 2010 to 3% in 2020.
In addition, a HousingWire article showed that 26.1% of renters surveyed with leases expiring in the next six months said they are likely to renew their lease, 35.9% are likely not to renew and 38% are somewhat likely or not sure at the moment.
Renters who pay more than $1,750 a month are the least likely to renew at just 18.7%, while 41.6% said they are not likely to renew. This data speaks to the shift from city life to the suburbs that people are considering, and it may continue to fuel demand for housing.
Family Hack of the Week
This year, Father’s Day is June 21. While the types of celebrations that are possible may vary widely around the country with differing stages of stay at home orders in place, these ideas from Good Housekeeping can make for a perfect celebration anywhere.
Start the day off right by cooking a hearty brunch for dad with all his favorites. And you can never go wrong with baking your dad’s favorite dessert for later in the day.
Plan a family game or movie night where everyone steps away from their phones and screens and enjoys fun time together. Drive-in movies have also become popular in many cities and can provide a fun and safe night out.
If your dad loves to learn new things, consider signing him up for an online class. Many universities offer free or low-cost classes or consider sites like MasterClass that provide classes from some of the most successful people in sports, writing, the arts and more.
For the travel-loving dad, consider a day of virtual “travel” via free online tours of museums and other famous sites all around the world.
Lastly, if your dad is missing his favorite sports team, many past games are available to stream. Create a marathon of winning games from his favorite teams that he can enjoy.
What to Look for This Week
This week brings a look at data across a wide spectrum of the economy. In the housing sector, the National Association of Home Builders Housing Market Index for June releases Tuesday, followed by May’s Housing Starts and Building Permits Wednesday. Tuesday also brings Retail Sales data for May. We’ll get an update on manufacturing in the New York region with the Empire State Index for June on Monday, followed by the Philadelphia Fed Index on Thursday. Last, but certainly not least, the latest weekly Initial Jobless Claims remains critical to monitor when it releases as usual on Thursday.
The Fed’s ongoing purchases of Mortgage Backed Securities continue to stabilize the markets and, as noted above, they are planning to continue these purchases at current levels. Mortgage Bonds were able to shift direction and rebound last week, breaking above both their 25-day and 50-day Moving Averages. They ended the week trading just support at the 50-day Moving Average.
Week of June 1st, 2020 in Review
The labor sector dominated the headlines as the ADP and Bureau of Labor Statistics Jobs Reports for May were released. First up on Wednesday, the ADP Report showed 2.76 million job losses in the private sector during the month of May. While this remains a devastating number, it was also significantly better than expectations, which we explain in more detail below.
But it was Friday that brought the big surprise as the BLS reported 2.5 million job gains in May! That’s right, gains not losses. In addition, the Unemployment Rate decreased from 14.7% to 13.3% in May, which was much stronger than expectations of nearly 20%.
Meanwhile, the latest weekly Initial Jobless Claims showed that 1.877 million people filed for unemployment for the first time during the week ending May 30. This was in line with estimates and a decline from the previous week. However, the number of continuing claims, which reflect people continuing to receive benefits, did increase.
In housing news, CoreLogic’s Home Price Index Appreciation report showed that home prices rose from March to April and when compared to April of last year. However, forecasts for May are for an annual decline in prices.
Lastly, the National Association of REALTORS reported that 65% of people who attended an open house within the last year would do so now without hesitation. This speaks to buyers feeling a bit bolder and may support demand.
Huge Surprise in May Jobs Report
There were 2.5 million job gains in May, per the Bureau of Labor Statistics. Given that the market was expecting 7.7 million job losses, Friday’s report was nearly a 10 million swing from what was anticipated.
The BLS explained, “These improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus pandemic and efforts to contain it. In May, employment rose sharply in leisure and hospitality, construction, education and health services, and retail trade.”
It’s important to note that there are two reports within the Jobs Report – and there is a fundamental difference between them.
The Business Survey, where the headline job number comes from, is based predominantly on modeling. The Household Survey, where the Unemployment Rate comes from, is done by actual phone calls to 60,000 homes. The Household Survey also has a job loss or creation component, meaning it may be more reflective of actual job numbers – and it came in even higher than the headline number, showing 3.84 million job gains.
The Unemployment Rate decreased from 14.7% to 13.3%, which was much stronger than expectations of nearly 20%. While there were 3.84 million job gains per the Household Survey, 1.58 million people entered the labor force, which is why we saw the unemployment rate decrease.
The all in U6 Unemployment Rate, which includes total unemployed, plus all persons marginally attached to the labor force, plus total employed part-time for economic reasons, decreased from 22.8% to 21.2%.
Lastly, average hourly earnings decreased from 7.9% to 6.7%, while average weekly earnings increased from 7.4% to 7.7%. Part of the reason for the weekly increase was an increase in hours worked of 0.5 hours.
ADP Employment Report Beats Expectations
The ADP Employment Report, which measures nonfarm private sector employment, showed that there were 2.76 million job losses in the month of May.
While this is still a staggering number of job losses, it was much better than the 8.75 million losses that were expected. Additionally, April’s figure was revised higher by 679K, lowering the job loss total from 20.236 million to 19.6 million.
While we are in unprecedented times and the margin for error is likely extremely high, it’s important to consider how ADP beat expectations by so much.
The answer likely has to do with the number of individuals who returned to work in May. By looking at Continuing Jobless Claims that are reported each Thursday, we know that 4 million people returned to work in just one week. And because continuing claims are backward looking by two weeks, we don’t know exactly how many people returned to work in the entire month of May yet. It’s possible that there were 7 to 8 million people who returned to their jobs, which would explain why there were only 2.76 million job losses instead of the expected 8.75 million.
Weekly Initial Jobless Claims Fall Below 2 Million
Another 1.877 million individuals filed for unemployment benefits for the first time during the week ending May 30. This amount met estimates and was a decrease from first-time filings in the previous week. California (+230K), Florida (+206K) and Georgia (+148K) posted the largest gains. Interestingly, the number of continuing claims, which measure people who continue to
receive benefits, increased by 650K to 21.5 million. This is quite a change from the previous report, which showed a 4 million decrease in continuing claims as people returned to work. One possible reason is that many people are making more money on unemployment than they were while working. We have seen estimates that 40% of workers are making more, some almost double, on unemployment benefits, impacting the incentive to return to work.
Home Prices Continued to Rise in April
The latest CoreLogic Home Price Index Appreciation report showed that home prices rose 1.4% from March to April. Washington (5.7%), Las Vegas (5.4%), and San Diego (5.3%) led the gains. Home prices were also up 5.4% when compared to April of last year, which is up from the 4.5% annual increase seen in the previous report.
CoreLogic forecasts that home prices will rise 0.3% from April to May, but they do expect prices to fall 1.3% in the year going forward. If this proves accurate, it would be the first decline in their data in 9 years.
Home Hack of the Week
The official start of summer is just a few weeks away. These quick and easy seasonal tips will ensure your family is safe and home is ready as the temperatures rise.
Your air conditioner is the last thing you want to fail when you really need it. If you haven’t scheduled a service call for your unit yet this year, now is the perfect time to do so.
Clean your ceiling fans with a damp rag to make sure they don’t spread any allergens when you’re ready to use them. Also, make sure they’re set to spin counterclockwise to provide cool air during the summer months.
Check playgrounds and other outdoor sports equipment for any cracks or warping that may have occurred during the winter months. Double check fences as well for any rotten or sagging areas. If you have an electric fence for pets, check the batteries.
Keep your garage safe for kids and pets by storing gasoline for your lawnmower or grill, paint and any other chemicals out of their reach.
Last, check and replace any outdoor light bulbs, especially around your porch and deck if your family enjoys spending time outside in the warm evenings. As an added bonus, consider adding string lights for both extra light and ambiance.
What to Look for This Week
The latest weekly Initial Jobless Claims remains critical to watch when it releases as usual on Thursday. Also important are 10-year note and 30-year bond auctions and the Fed’s regularly scheduled two-day meeting that will culminate with their statement on Wednesday. Inflation will also be in the news, with May’s Consumer Price Index coming Wednesday and the wholesale-measuring Producer Price Index on Thursday.
The Fed’s ongoing purchases of Mortgage Backed Securities have kept the markets fairly stable. Mortgage Bonds were due for a breakout from the tight range they had been in between their 25- and 50-day Moving Averages, and that breakout came to the downside. They ended the week trading in a wide range between support at the 100-day Moving Average and overhead resistance at the 25-day Moving Average.
Week of May 25th, 2020 in Review
Initial Jobless Claims remain in the millions, as another 2.123 million people filed for unemployment for the first time during the week ending May 23. While the number of first-time filers has declined in recent weeks, the latest figure now means that the total number of initial jobless claims filed since the pandemic began is just shy of a staggering 41 million. There was also an important data point to note in the number of continuing claims that were filed, as explained below.
As expected, the Fed’s favorite inflation measure, Personal Consumption Expenditures, showed that inflation declined in April due to the lack of pricing pressure. Meanwhile, the preliminary or second look at first quarter GDP was reported at -5%, down from the first estimate of -4.8% and the third worst reading ever. Not surprisingly, the early estimates for second quarter are much worse, with expectations for a contraction of 34%, with a 15% bounce back in the third quarter – which would still leave GDP negative if that proves accurate.
And that is the real question: Will we see a rebound in the third quarter if and as the economy opens, and by how much?
Housing news brought a surprise, as New Home Sales for April showed an increase rather than the expected decrease. Pending Home Sales, however, were down almost 22% in April, far below estimates.
Home appreciation figures were also released for March, and while the data is not fully reflective of the current environment, it provides some important and positive takeaways that are detailed below.
Lastly, President Trump held a news conference on Friday and while there was some uncertainty about what he might say regarding China, he did leave the Phase One Trade Deal with China intact.
Continuing Jobless Claims Provide Key Update
Initial jobless claims remain in the millions, with 2.123 million people filing unemployment claims for the first time during the week ending May 23. While this was just slightly above estimates of 2.1 million, it was a decline from the previous week. Since the pandemic began, nearly 41 million people have filed for unemployment.
Perhaps the most important number within the report was continuing claims, which measure people who continue to receive benefits. This figure dropped from nearly 25 million to 21 million, meaning 4 million people returned to work as states have started to reopen.
Factoring in the number of new claims, continuing claims and the labor force, we estimate the unemployment rate is currently 14.8%. If we try to estimate how many new jobs the Paycheck Protection Program has temporarily created, we think that the unemployment rate could be closer to 18% without it.
New Home Sales Surprise
April New Home Sales, which measure signed contracts on new homes, were up 0.6% versus the 22% drop that was expected. However, sales are 6.2% lower when compared to April of last year.
The median home price was reported at $309,900, a decrease from $339,000 that was reported in March. Note that this does not mean that home prices were necessarily lower, but that lower priced offerings were put on the market.
Inventory remains a challenge, as there were 325,000 new homes for sale, which was slightly lower than March’s number of 333,000. For comparison’s sake, there were 1.47 million existing homes for sale at the end of April, down 20% from last year and a whopping 34% lower than April 2015.
Meanwhile, Pending Home Sales, which measure signed contracts on existing homes and are a good leading indicator for Existing Home Sales, were down almost 22% in April. This was well worse than the estimates of a 15% decline. Pending Home Sales are now 34% lower than April of last year.
However, the National Association of REALTORS® did upgrade their 2020 forecast, with NAR’s chief economist, Lawrence Yun, saying, “Given the surprising resiliency of the housing market in the midst of the pandemic, the outlook for the remainder of the year has been upgraded for both home sales and prices, with home sales to decline by only 11% in 2020 with the median home price projected to increase by 4%.”
Yun also noted, “While coronavirus mitigation efforts have disrupted contract signings, the real estate industry is ‘hot’ in affordable price points with the wide prevalence of bidding wars for the limited inventory.”
Home Appreciation Shows Housing Market Strength
The Case-Shiller Home Price Index (considered the “gold standard” for appreciation) and Federal Housing Finance Agency (FHFA) House Price Index showed that home appreciation remained strong in March.
Case-Shiller’s National Index, which covers all nine U.S. Census divisions, reported a 4.4% annual gain in March, which was an increase from 4.2% in February. In fact, in the months’ prior, annual appreciation increased from 3.2% in November, to 3.7% in December, to 3.9% in January, before reaching the levels noted for February and March.
Meanwhile, Case-Shiller’s 20-city Index increased from 3.5% in February to 3.9% in March on an annual basis. Phoenix led the way with an 8.2% year-over-year price increase, followed by Seattle (+6.9%) and Charlotte (+5.8%).
On that same note, the FHFA House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts, showed that home prices rose 0.1% in March and 5.9% year over year.
While the data for both indexes is for March and does not reflect the period we are in now, it shows two important things to keep in mind. First, the housing market was really accelerating prior to the pandemic. Second, there is a big cushion for housing on an annual basis.
Inflation Declines in April
As expected, inflation fell in April due to the continuing lack of pricing pressure. Personal Consumption Expenditures, which is the Fed’s favorite measure of inflation, dropped 0.5% in April while also falling from 1.3% to 0.5% year over year. The Core rate, which strips out volatile food and energy prices, dropped 0.4% in April and fell from 1.7% to 1.0% year over year.
Personal incomes were up 10.5%, which is likely due to the disproportionate amount of lower income earners who were laid off. This coincides with the big surge we saw in average hourly and weekly earnings last month.
Spending was down 13.6%, partly due to people who want to stockpile cash because of uncertainty and to a lack of options with many areas of the country on lockdown in April. As a result, the savings rate reached an all-time high of 33%.
Family Hack of the Week
Many high school and college seniors have long imagined the moment they could move their tassels and toss their caps to celebrate their graduation with friends and family. Sadly, those ceremonies have been canceled for so many grads around the country.
If you’re planning a virtual graduation party to mark the occasion, be it on Zoom, Google Hangouts or a similar platform, these tips from our friends at Real Simple can help you achieve that festive feeling.
Deck your yard or patio with graduation lawn signs and balloons. You could include the colors of your grad’s current school, as well as colors of the college your high school senior has chosen.
Make a playlist of songs to celebrate your grad for ambient music in the background.
Create a celebratory menu of your grad’s favorite and easy-to-prepare foods so your friends and family can share the meal together and toast your graduate during the call.
Lastly, as an added bonus, ask your friends and family to record and send you a short video tribute to your grad before the party that you can play for everyone to see. These will also become great mementoes your grad can cherish forever.
Week of May 18th, 2020 in Review
Professionals around the country continue to feel the lasting impact of the COVID-19 pandemic, as another 2.44 million people filed for unemployment during the week ending May 16. While the number of new claims has declined in recent weeks, the total amount remains staggering.
In housing news, the National Association of Home Builders released its Housing Market Index, which is a real-time read on builder confidence. While all components of the index (including present conditions, future expectations and prospective buyer traffic) improved from April to May, the figures are still understandably and significantly lower than they were in March.
Reports also showed that Housing Starts and Building Permits both plunged from March to April, as did sales of existing homes.
Fed chair Jerome Powell was in the news, appearing on 60 Minutes and testifying in front of the Senate. Of note, he said on 60 Minutes that the economy could shrink upwards of 30% in the second quarter. However, he does not see the economy entering another depression and he believes the US will get to “an even better place” than it was before the coronavirus hit, and that it “won’t take that long.”
Powell also testified that the Fed is “committed to using our full range of tools to support the economy in this challenging time even as we recognize that these actions are only a part of a broader public sector response.” He also said, not surprisingly, that rates will stay at zero “until we are confident that the economy has weathered recent events and is on track to achieve our maximum employment and price stability goals.”
Lastly, there was some promising information at the start of the week from Moderna regarding its vaccine trials, as 45 participants produced COVID-19 antibodies. This is especially significant, given that 52% of small businesses in a recent survey said that they fear they would be out of business in 6 months or less if restrictions to reopen continue. Stocks responded favorably when the news was first reported and we will continue to monitor this story.
Unemployment Woes Continue
Another 2.44 million people filed for unemployment for the first time during the week ending May 16, which was in line with estimates. California (+246K), New York (+226K) and Florida (+224K) saw the largest gains.
Factoring in the number of new claims, continuing claims, and the amount of people in the labor force, we estimate that the unemployment rate is around 21.5%. However, when we estimate the number of new jobs the Paycheck Protection Program has temporarily created, we think that the unemployment rate could be closer to 24.7% without it.
April Existing Home Sales Plummet
The latest Existing Home Sales report, which measures closings in April and likely represents buyers shopping for homes in February and March, showed that sales decreased by 17.8% from March to April. This was the largest monthly drop since July 2010 when the home buyer tax credit, a federal stimulus resulting from the subprime mortgage crash, expired. Sales were also 17.2% lower when compared to April of last year.
The median home price was reported at $286,800, up 7.4% year over year. Single family sales were down 16.9% compared to March, but condos saw a much bigger drop of 26.4%. This could start to show the migration from cities into suburbs.
Inventory was much tighter and remains a concern, as there were only 1.47 million units for sale in April, down 1.3% from March and a whopping 19.7% lower than last April.
At the current pace of sales, this represents a 4.1-month supply and is the lowest April supply figure on record. This should be very supportive of prices, especially with demand remaining strong as evidenced by purchase application volume.
As NAR’s chief economist Lawrence Yun explained, “Record-low mortgage rates are likely to remain in place for the rest of the year, and will be the key factor driving housing demand as state economies steadily reopen. Still, more listings and increased home construction will be needed to tame price growth.”
And Speaking of Home Construction …
The National Association of Home Builders released its Housing Market Index, which is a real-time read on builder confidence, for the month of May. While the reading increased to 37 from 30 in April, it is just over half the 72 reading that was reported in March.
Diving deeper into the survey’s components, confidence in present conditions rose 6 points to 42 from April, versus 79 in March. Future expectations were up 10 points from April to 46, as compared with 75 in March, while prospective buyer traffic rose to 21 from 13 after reaching 56 in March. Keep in mind that 50 is the baseline, meaning anything above 50 signals expansion while below means contraction.
The NAHB said, “The fact that most states classified housing as an essential business during this crisis helped to keep many residential construction workers on the job, and this is reflected in our latest builder survey.” Also, “Low interest rates are helping to sustain demand.”
There is a caveat to all of this, though, namely, “High unemployment and supply side challenges including builder loan access and building material availability are near term limiting factors.”
Home construction figures were also released for April, with Housing Starts down 30% from March, the biggest percentage decline on record. Specifically, starts for single family homes dropped 25%. Building Permits, which are a sign of future construction, plunged 21% with single family permits down 24%.
While we can likely expect housing – the “economic driver” – to slow, the lack of supply as noted above will be supportive of home prices.
FHFA Update on Home Forbearance
The Federal Housing Finance Agency has announced that Fannie Mae and Freddie Mac borrowers in forbearance can apply for refinancing and new purchase mortgages once their loans are current. The policy waives a previous mandatory wait of 12 months, which will allow faster access to record-low rates.
According to the FHFA, borrowers are eligible to refi or purchase a new home if they are current on their mortgage in forbearance but continued to make mortgage payments or reinstated their mortgage. Borrowers are eligible to refinance or buy a new home three months after their forbearance ends and they have made three consecutive payments under their repayment plan, payment deferral option or loan modification.
“Homeowners who are in COVID-19 forbearance, but continue to make their mortgage payment, will not be penalized,” said FHFA Director Mark Calabria. “Today’s action allows homeowners to access record low mortgage rates and keeps the mortgage market functioning as efficiently as possible.”
Home Hack of the Week
With the start of summer less than a month away, spending time in your garden may be high on your to-do list. Here’s a great checklist you can follow from the folks at Better Homes & Gardens.
Bird feeders are no exception when it comes to needing a spring clean. If you haven’t done so already, wash and refill yours with fresh seeds for the season.
As your spring bulbs continue to flower, take note of any empty spots in which you may want to plant additional bulbs in the fall.
Annuals are great for providing pops of color throughout your yard as well as in containers on your front porch or back deck. Check local garden centers for the best options for your area and soil type. Fresh layers of mulch around your plants can also help minimize weeding over the summer.
Lastly, take a word of advice from moms and don’t forget your veggies. Tomatoes, peppers and herbs are great choices as the weather starts to warm in earnest.
What to Look for This Week
After the Monday market closures in honor of the Memorial Day holiday, the rest of the week is jam-packed with reports. Tuesday brings several key housing updates, including the Case-Shiller and FHFA home price indexes for March and New Home Sales for April, plus May Consumer Confidence.
The latest weekly Initial Jobless Claims will be critical to watch on Thursday, while April Durable Goods and the second estimate for 1Q GDP will provide important updates on the economy. Friday brings a wide range of news, including the final Consumer Sentiment numbers and manufacturing highlights via the Chicago PMI for May, and the Fed’s favorite measure of inflation, Personal Consumption Expenditures, along with Personal Income and Spending for April.
The Fed continues to purchase Mortgage Backed Securities in line with its goal of stabilizing the markets. After falling below support at the 50-day Moving Average at the start of the week, MBS were able to rally and now continue to trade in the middle of a 53bp range between the aforementioned support and overhead resistance at the 25-day Moving Average.
The 10-year is in a similar position, being squeezed in a range between its 25 and 50-day Moving Averages, though it has been moving lower and testing the 25-day. This is related to the negative stochastic crossover on the stochastic chart. If Treasury yields break beneath the 25-day, we may see Mortgage Bonds move higher and follow suit.
Week of May 11th, 2020 in Review
The pandemic continues to impact all areas of the economy, wreaking havoc especially in the labor sector as another 2.98 million people filed for unemployment for the first time during the week ending May 9.
Meanwhile, inflation was on the decline in April at both the consumer and wholesale levels, which was expected due to the lack of pricing pressure. Retail sales also dropped 16.4% from March to April, making it the worst report on record.
Not surprisingly, optimism among small businesses fell in April per the National Federation of Independent Business’ index. Plans to hire and capital spending both declined from March, while future and current compensation plans were slashed in half. The bright spot was that those who expect a better economy jumped from 5% to 29%.
Consumer Sentiment did also rise from April to May, coming in at 73.7 and above expectations, due in part to stimulus checks from the CARES act improving people’s finances, noted Richard Curtin, chief economist for the Surveys of Consumers.
Manufacturing in the New York area improved as well from April to May but is still very weak.
Of note in housing news, the Mortgage Bankers Association reported that as of May 3, 7.91% of mortgages are now in forbearance, up from 7.54% the prior week.
Lastly, Fed Chair Jerome Powell gave some somber remarks on Wednesday, saying that the path ahead is uncertain and significant risk remains to our recovery. He noted that 40% of households earning under $40,000 lost their jobs in March alone and said additional relief may be needed in the near term. Powell vowed that the Fed will use all its tools to aid in our recovery, though he did say that the Fed was not considering negative rates for its benchmark Fed Funds Rate, which the Fed cut to zero in March.
Initial Jobless Claims Remain in the Millions
Another nearly 3 million people filed for unemployment for the first time during the week ending May 9, with Connecticut (+299K), Georgia (+241K) and Florida (+222K) reporting the biggest increases. While the total number is a decrease from the 3.17 million claims filed during the previous week, the amount was about 500,000 claims higher than anticipated.
When we factor in the number of new claims, the number of continuing claims (which increased by about 460K to 22.8 million) and the amount of people in the labor force, we estimate that the unemployment rate is around 19.4%. And if we try to estimate how many new jobs the Paycheck Protection Program has temporarily created, we think that the unemployment rate could be closer to 22.6% without it.
The bottom line is that while initial jobless claims are slowing, they remain at unbelievably high levels, especially given that we were averaging 200K new weekly initial jobless claims prior to the pandemic.
Inflation Declines in April
As expected, inflation fell in April due to the lack of pricing pressure. April’s Consumer Price Index (CPI), which measures consumer inflation, came in at -0.8% while dropping from 1.5% to 0.3% on an annual basis. A big part of the decline was due to oil prices, which have dropped significantly. The monthly drop was the largest decline since the Great Recession in 2008 and marked the second straight monthly decrease.
The Core reading, which strips out volatile food and energy prices, dropped by 0.4% from March to April and from 2.1% to 1.4% when compared to April of last year.
On the wholesale level, the Producer Price Index (PPI) was down 1.3%, which was worse than the expected 0.5% decrease. PPI also moved lower from 0.7% to -1.2% year over year, which was worse than expectations. Core PPI, which strips out food and energy prices, also decreased by 0.3%, which again was worse than expectations, while the annual rate dropped from 1.4% to 0.6%.
Retail Sales and Manufacturing Update
Retail sales tumbled over 16% in April, worse than the 12% drop predicted and coming in as the worst report on record. While online retail sales rose 8.4%, everything else fell precipitously.
Clothing stores were hit especially hard, showing a -78.8% plunge in sales, while sales at electronics and appliance stores (-60.6%), furniture and home furnishing stores (-58.7%) and sporting goods stores (-38%) were also impacted in a big way. Bars and restaurants also saw a -29.5% drop in sales, as did gasoline stations (-28.8%), with people on the roads less.
The control group, which takes out autos, gasoline and building materials, showed that retail sales fell by 15.3% overall, three times the estimate. We will see how these figures change in the coming months as states begin to reopen.
The May Empire State Manufacturing Index, which measures manufacturing activity in the New York area, rose to -48.5 from -78.2. This was better than estimates of -60 but still very weak. Of note, the 6-month outlook did recover to 29.2 from 7.0 on the obvious hopes that the situation can’t get any worse as things reopen and factories can turn the lights back on.
Home Hack of the Week
Many people have been eating at home more than normal in recent months, and if that’s true for you, now is a great time to inspect your fridge to make sure it’s running efficiently. Here are some simple maintenance tips to help, courtesy of our friends at Real Simple.
Make sure seals are clean and free from food particles. Clean them once every few months using a toothbrush dipped in a solution of water and baking soda.
Empty your ice bins once a month to prevent ice build-up and keep ice from absorbing food odors. An open box of baking soda in both the fridge and freezer will also help absorb strong odors and keep your fridge smelling fresh. Be sure to replace the water filter as soon as the sensor alerts you.
Check that your fridge is level by placing a level on top and adjusting the feet if needed. An uneven fridge may not close properly, which can both strain the motor and cause condensation.
Typical ideal temperatures for your fridge range from 37 to 40 degrees Fahrenheit and 0 degrees for your freezer, or check your owner’s manual for the manufacturer’s recommendation. The manual should also include instructions for vacuuming the condenser coils if they have become clogged or dusty.
What to Look for This Week
Housing data will dominate the headlines throughout the week, as the NAHB Housing Market Index for May releases on Monday, followed by April’s Housing Starts and Building Permits on Tuesday and Existing Home Sales on Thursday. Weekly Initial Jobless Claims remain critical to monitor when the report also releases Thursday, as usual.
The Bond market will close early at 2:00 pm ET Friday, ahead of the Memorial Day weekend, while Stocks will be open for a full trading session.
The Fed continues to purchase Mortgage Backed Securities in line with its goal of stabilizing the markets. MBS have been trading in the middle of a wide range between support at the 50-day Moving Average and overhead resistance at the 25-day Moving Average. While there may be some volatility within this range, it shouldn’t be too extreme until either the ceiling or floor are tested. The 10-year is trading at 0.64% and we will be watching to see if it moves lower towards the all-time low of 0.31%.
Week of May 4th, 2020 in Review
All eyes were on the labor sector, as the ADP Employment Report and Bureau of Labor Statistics Jobs Report for April were released, along with the latest weekly Initial Jobless Claims. The ADP Report was the worst ever on record, showing just over 20 million job losses, while the BLS also reported a record 20.5 million job losses.
The Unemployment Rate increased from 4.4% in March to 14.7% in April. However, it’s important to note that this figure was determined from data compiled during the week of April 12, which is then modeled for the rest of the month. Given the high number of Jobless Claims that have been filed more recently, it is likely the current unemployment rate is actually higher.
Meanwhile, 3.169 million more people filed unemployment claims for the first time during the week ending May 2. This was close to market estimates of 3 million new jobless claims, though the number was 823,000 fewer claims than the previous week. California (+318,000), Texas (+247,000) and Georgia (+227,000) saw the largest increases.
Over in the housing sector, CoreLogic released its home appreciation figures for March, which showed that home prices rose 1.3% from February and 4.5% year-over-year.
Staggering Job Losses in April Jobs Reports
The ADP and BLS Jobs Reports showed the immense economic impact of the pandemic in April. Released on Wednesday, the ADP Employment Report showed that there were 20.236 million job losses, which is the worst on record, though the data was in line with estimates. March’s figure was also revised lower from – 26,594 to -149,000 job losses.
The service sector had the most losses, with just over 16 million, while goods producers fell by 4.3 million. Big businesses with more than 500 employees lost about 9 million jobs. Companies with fewer than 50 employees were down by a little over 6 million and medium-sized firms had 5.27 million jobs lost.
The BLS Jobs Report also showed a staggering 20.5 million job losses in April, and though the figure was in line with estimates, it is still stunning to digest. Diving deeper into the data, it’s important to note that there are two reports within the Jobs Report: the Business Survey, which features the headline job number, and the Household Survey, which is where the Unemployment Rate comes from.
And there is a fundamental difference between these two reports.
The Business Survey is based predominately on modeling, while the Household Survey is done by actual phone calls to 60,000 homes, which means the latter may be more reflective of actual job losses. By comparison, the Household Survey showed there were 22.4 million job losses versus the headline number of 20.5 million job losses from the Business Survey.
Breaking Down Unemployment and Earnings Data
The Unemployment Rate increased from 4.4% to 14.7% from March to April. While there were 22.4 million job losses, over 6 million people left the labor force. However, with the latest labor force figures including the 7 million Initial Jobless Claims filed over the past two weeks, it’s likely that we’re closer to 19.7% unemployment at this time.
The all in U6 Unemployment Rate, which includes total unemployed, plus all persons marginally attached to the labor force, plus total employed part-time for economic reasons, increased from 8.7% to 22.8% in April. The labor force participation rate decreased from 62.7% to 60.2%.
Average hourly earnings increased 4.6% from March to April and 7.9% year over year, while average weekly earnings increased 4.98% on a monthly basis and 7.4% annually. Note that this doesn’t necessarily mean that people were paid more in April, but rather that more lower paying jobs were lost.
Home Prices Still Appreciating
A key home appreciation report was released by CoreLogic, which showed that home prices rose 1.3% from February to March and 4.5% when compared to March of last year. The year-over-year reading increased from 4.1% in the prior report. CoreLogic forecasts that home prices will rise 0.6% in April and 0.5% annually. The states with the highest annual increases in March were Idaho (11.7%), Arizona (8.2%) and New Mexico (7.6%).
Frank Martell, President and CEO of CoreLogic, said, “The CoreLogic U.S. Home Price Index is predicted to remain largely unchanged over the next year or so after a long uninterrupted run of appreciation. Although the economic fallout from lockdown orders, put in place to fight the spread of COVID-19, will be profound, the basic supports for a rebound in home purchase activity remain in place. Once the shelter-in-place policies are lifted, we expect millennials, who submitted home-purchase applications well into the crisis, to lead the way back to a positive, purchase-driven housing cycle.”
While the CoreLogic forecast is a bit lower than some others, we think that there are strong supply and demand dynamics in place for housing that will aid with appreciation. However, the level of appreciation will be impacted by how long the record levels of unemployment persist.
Family Hack of the Week
If extra art projects have become the norm around your house in recent weeks, you may be looking for some unique ways to display them. Here are just a few ideas from HGTV.
Create a gallery wall with display rails to easily add new artwork. Your kids can even personalize their section of the gallery by adding foam letters or other decorative elements for their names.
Clipboards can serve double duty as a quick-change frame. Add several on a wall or shelf and simply clip on new pieces as your kids draw or color them.
Digital photo frames are especially handy if wall space is at a premium. Snap photos of your kids’ artwork, load them into the frame and enjoy the digital display.
What to Look for This Week
Weekly Initial Jobless Claims will once again be the key report to look for when it releases as usual on Thursday. We will also get an update on consumer and wholesale inflation for April via the Consumer Price Index on Tuesday and the Producer Price Index on Wednesday. Expect inflation to once again show declines due to the lack of pricing pressure.
Ending the week on Friday, we will get a look at new construction data from the NAHB Housing Market Index. Friday will also bring the latest on Retail Sales for April, plus May Consumer Sentiment and manufacturing data for the New York region via the Empire State Index, which will all likely reflect the continuing impact of the pandemic on our economy.
The Fed continues to stabilize the Mortgage Backed Securities market through its purchases; however, MBS did fall below their 25-day Moving Average last week. They ended the week trading sideways in a wide 93bp range between support at the 50-day Moving Average and near resistance at the 25-day Moving Average. The 10-year is trading at 0.66% and we will be watching to see if it moves lower towards the all-time low of 0.31%.
Week of April 27th, 2020 in Review
A slew of economic data was released last week, giving us even greater insight into the pandemic’s impact on our economy. Most significantly, the latest Initial Jobless Claims showed that 3.8 million people filed unemployment claims during the week ending April 25, which was close to market estimates. Factoring in the number of new claims, continuing claims, and the amount of people in the labor force, we estimate there to be a staggering 17% unemployment rate!
The first look at first quarter GDP was also released, showing that our economy contracted by -4.8% in January through March of this year. This was the weakest reading in more than 10 years … and is likely just the tip of the iceberg compared to what the figures for the second quarter will be.
The Fed held its regularly scheduled meeting and, as expected, left its benchmark Fed Fund Rates at zero. Among other things, the Fed noted that inflation is being held down by weaker demand and significantly lower oil prices, which was confirmed in the latest Personal Consumptions Expenditures report.
Over in the housing sector, Pending Home Sales, which measures signed contracts on existing homes, decreased by 20.8% in March, much worse than expectations. However, the accompanying news release did have some positive takeaways, as did the latest Case-Shiller home price index, as detailed below.
First Look at First Quarter GDP
The advanced or first look at first quarter GDP showed that our economy shrank by -4.8%, which was the weakest reading since March 2009. This reading is especially significant when you consider that GDP fell that much even though we likely only saw the pandemic’s impact during the second half of March.
While this certainly means we will see a much bigger decline in GDP in the second quarter, the real question is will see a rebound in the third quarter if and when the economy re-opens?
Pending Home Sales Plunge But Offer Glimmer of Hope
Pending Home Sales, which measures signed contracts on existing homes and is a good leading indicator for Existing Home Sales, were down almost 21% in March … well worse than the shot in the dark estimates of -13.6%.
“The housing market is temporarily grappling with the coronavirus-induced shutdown, which pulled down new listings and new contracts,” said Lawrence Yun, NAR’s chief economist.
However, Yun noted that, “As consumers become more accustomed to social distancing protocols, and with the economy slowly and safely reopening, listings and buying activity will resume, especially given the record low mortgage rates.”
On home prices, Yun also shared some positive insight, explaining, “Although the pandemic continues to be a major disruption in regards to the timing of home sales, home prices have been holding up well. In fact, due to the ongoing housing shortage, home prices are likely to squeeze out a gain in 2020 to a new record high. I project the national median home price to increase 1.3% for the year, though there will be local market variations and the upper-end market will likely experience a reduction in home price.”
Home Appreciation Data Also Shows Important Cushion
The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, for February was released. Of its various indexes, it’s especially important to note the National Index and the 20-city Index.
The National Index, which covers all nine U.S. Census divisions, reported a 4.2% annual gain in February, which was an increase from 3.9% in January. Meanwhile, the 20-city Index increased from 3.1% to 3.5% on a year over year basis. Phoenix (7.5%), Seattle (6%), Tampa (5.2%) and Charlotte (5.2%) led the gains.
While this data is old and does not reflect circumstances since the pandemic began, it does show that the housing market was really accelerating beforehand. This is critical because it provides a big cushion for housing on a year over year basis. Annual appreciation went from 3.2% in November, to 3.7% in December, to 3.9% in January, and now 4.2% in February. Hopefully, this may prevent gains from going negative.
The Latest on the Fed and Inflation
The Fed held its regularly scheduled meeting and, as expected, left its benchmark Fed Fund Rates at zero. The Fed said that it is “committed to using its full range of tools to support the US economy in this challenging time, thereby promoting its maximum employment and price stability goals.” The Fed also said it would continue to purchase Treasuries and MBS “in the amount needed” and it noted that inflation is being held down by weaker demand and significantly lower oil prices.
This was confirmed by the release of the Fed’s favorite measure of inflation, the Personal Consumption Expenditures (PCE) Report. The data for March showed that headline inflation dropped from 1.8% to 1.3% year over year, which was expected due to the decline in oil prices and lack of pricing pressure. The Core rate, which strips out volatile food and energy prices, dropped from 1.8% to 1.7%. We expect this reading to continue to fall moving forward.
Family Hack of the Week
Sunday, May 10 is Mother’s Day and if having brunch or dinner in-person with your mom this year isn’t possible, sharing a meal still is, thank to these tips from Martha Stewart for cooking a virtual meal together.
First, pick a dish that utilizes pantry staples or easy to find ingredients and keep it simple, so you can balance time to chat and catch up with time to focus on all the prep work. You could also go for a challenge and pick a recipe your family hasn’t made before and compare what is and isn’t working as you cook. Alternatively, a family favorite recipe is a great choice and can help with a sense of family traditions.
If a full brunch or dinner seems daunting to do virtually, instead you could plan to bake together, which is a great choice if kids want to be involved.
And once your recipe of choice is in the oven or simmering on the stove, you can use the time to share family stories and other cherished memories.
What to Look for This Week
The labor sector will be the main focus of the week, with several key reports ahead. First up on Wednesday, look for the ADP employment report for April, which will be followed Thursday by the latest Initial Jobless Claims figures. Friday, the big news will be the Bureau of Labor Statistics Jobs Report for April, which includes non-farm payrolls and the unemployment rate. The estimate, which is really anyone’s guess, is for 20,000,000 job losses while the unemployment rate is expected to rise from 4.4% to 14%. However, this report is for April and was put together the week of April 12, so expect the figure to undershoot the real picture.
The Fed has done a good job of stabilizing the Mortgage Backed Securities market through its purchases, helping MBS to continue to trade in a sideways pattern in a range between support at the 25-day Moving Average and overhead resistance at the all-time closing high of 104.656. The 10-year is trading at 0.62% and we will be watching to see if it moves lower towards the all-time low of 0.31%.
Week of April 20th, 2020 in Review
More government stimulus is on the way, as Congress passed and President Trump signed into law the latest bill to help our struggling economy. Specifically, the bill includes more than $320 billion for the Paycheck Protection Program (PPP), which will help small businesses retain or rehire workers and will ultimately help the housing market. Funding for hospitals and testing was also included in the package.
This bill is especially timely, given that the latest Initial Jobless Claims showed that 4.4 million people filed for unemployment for the first time during the week ending April 18. This is a staggering number, as is the growing unemployment rate, which we breakdown in detail below.
Sales of new and existing homes also began to reflect the pandemic’s impact on the housing sector in March. Even with a strong beginning of the month, Existing Home Sales fell 8.5% while New Home Sales plummeted 15.4%. Orders for Durable Goods, which reflects new orders placed with domestic manufacturers for delivery of factory hard goods, also fell 14.4% in March, worse than expectations of an 11.7% decrease.
Finally, the Federal Housing Finance Agency released home appreciation figures for February, and while the data pre-dates the pandemic, there is a positive takeaway as noted below.
The Latest on Jobless Claims
Initial Jobless Claims once again reached into the millions, as 4.4 million people filed claims for the first time during the week ending April 18. This was down a million from the 5.2 million people who filed claims for the first time during the week ending April 11.
Let’s take a moment and look at what this means regarding the unemployment rate. There is a total of 164 million people in the labor force. Before the pandemic began, our unemployment rate was 3.5%, meaning that 5.6 million people were unemployed before the pandemic shutdowns were enacted.
In recent weeks, 26.5 million jobless claims have been filed. When we add that to the 5.6 million people who were unemployed before the pandemic, the total number of people unemployed is around 32 million. This equates to 20% unemployment given the number of people in the labor force.
However, we need to factor in the number of people coming back to work, possibly helped by the Paycheck Protection Program (PPP). When we look at continuing jobless claims from two weeks ago and add the new claims from the latest two weeks, the total number of jobless claims actually totals 25.6 million, not 26.5 million. This means almost 1 million people went back to work.
We estimate the unemployment rate to really be around 18.5% … maybe helped by the PPP a bit.
Home Sales Plunge
Existing Home Sales for March were down 8.5%, but according to the National Association of REALTORS®, sales during the first half of March were strong so the data does not reflect the full picture factoring in the pandemic. Also, closings in March are reflective of contracts that were signed in January and February, and buyer traffic has slowed a lot since then.
While it’s certainly anyone’s guess, projections are that sales could fall 30% to 40% over the next few months, and possibly be down 10% year over year depending on how long the economic shutdown lasts.
The median home price was reported at $280,600, up 8% year over year. Note this is not appreciation, as it’s the middle-priced home, meaning that half the homes sold above and half below this figure.
New Home Sales, which measures signed contracts on new homes, did not fare any better, plunging 15.4% from February to March. This was the largest monthly percentage decline since July 2013.
A Note on Home Appreciation
The Federal Housing Finance Agency released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts. Home prices rose 0.7% in February and 5.7% year over year. Of course, this is old data, but it does show how strong the housing market was before the pandemic began. We should expect home prices to take a hit due to job losses and lack of demand, but the 5.7% annual appreciation does provide some cushion and may prevent gains from going negative.
Family Hack of the Week
With the weather warming and schools still closed in many areas, you may be looking for some new backyard activities your kids can enjoy. Our friends at HGTV shared these ideas.
Your kids can still enjoy the fun of camping, but safely in your own backyard. Set up a tent and bring all the usual camp side fun, like binoculars, musical instruments and, of course, all the ingredients for s’mores.
If you have a plastic pool or sandbox your kids no longer use, help them turn it into a fruit or veggie garden that they can water daily and pick anything that’s ready to eat.
Most kids love sidewalk chalk, and you can make their daily drawings both fun and educational by encouraging them to draw a scene from a favorite book or movie.
Everyone loves a good scavenger hunt. You could hold weekly scavenger hunts in your backyard, and even tie the items your kids need to find to some of their lessons from school.
What to Look for This Week
Weekly Initial Jobless Claims will once again be a key data point to look for when it releases as usual on Thursday.
The rest of the week is equally busy. On Tuesday, we’ll get a read on how the consumer is feeling via Consumer Confidence for April, while first quarter GDP releases Wednesday. In housing news, the Case-Shiller Home Price Index for February releases Tuesday with March’s Pending Home Sales following on Wednesday. Thursday and Friday bring key manufacturing reports for April via the Chicago PMI and ISM Indexes, respectively.
On Thursday, we’ll also get a look at the Fed’s favorite measure of inflation, Personal Consumption Expenditures, along with Personal Income and Spending for March. And speaking of the Fed, their regularly scheduled two-day meeting will end Wednesday with the usual meeting statement.
The Fed’s buying of Mortgage Backed Securities continues to stabilize the markets, as Mortgage Bonds are still trading sideways in a range between support at their 25-day Moving Average and overhead resistance at 104.656, which is the all-time closing high for MBS. The 10-year is trading at 0.60% and will likely move lower towards the all-time low of 0.31%.
Week of April 13th, 2020 in Review
The continuing impact of the COVID-19 pandemic was evident across a wide-range of the U.S. economy in the latest week, as data for a variety of sectors was released.
Like the previous three weeks, Initial Jobless Claims once again climbed into the millions, as 5.25 million people filed for unemployment during the week ending April 11. This means the 4-week tally of claims has hit a nearly unfathomable 22 million people!
The housing sector did not fare much better as the NAHB Housing Market Index, which is a real-time read on builder confidence, saw its largest one-month drop ever. New home construction was practically stymied in March as well, with Housing Starts and Building Permits showing big declines.
March Retail Sales were also walloped, dropping 8.7% to the lowest read ever on record, while manufacturing in the New York and Philadelphia regions also plunged, with the Philadelphia Fed Index actually hitting its lowest level in 40 years.
Millions More Initial Jobless Claims Filed
Initial Jobless Claims totaled 5.25 million for the week ending April 11, down slightly from the 6.6 million claims filed during the prior week. These numbers are still alarming but off the peak seen in previous weeks.
Let’s take a moment to dive deeper into the numbers. There are 160 million people in the labor force and over the last four weeks, we have seen 22 million people file unemployment claims. Before the pandemic caused this spike in jobless claims, the unemployment rate was 3.5%, meaning that 5 million people were unemployed before the pandemic began.
So, when we factor in the number of people who were unemployed before the pandemic with the claims filed in the last four weeks, there are around 27 million people who are now unemployed. This equates to 17% unemployment, but the reality is this number is going to continue to rise. It’s likely unemployment may exceed 20%, which we would reach if 32 million people file jobless claims. Sadly, this seems very realistic now.
Builder Confidence and Home Construction Hit Hard
The NAHB Housing Market Index, which is a real-time read on builder confidence, dropped a whopping 42 points to 30 in April. This was well below the shot in the dark estimate of 55 and the largest one-month drop ever!
Note that a reading of 50 is the baseline, with a number above it signaling expansion and below signaling contraction. The index tracks three components, and all saw big declines. Current sales expectations fell 43 points to 36, sales expectations for the next six months dropped 39 points to 36, and buyer traffic dropped 43 points to 13.
The NAHB stated the obvious, “This unprecedented drop in builder confidence is due exclusively to the coronavirus outbreak across the nation, as unemployment has skyrocketed and gaps in the supply chain have hampered construction activities.”
Data on home construction confirms this sentiment, as Housing Starts for March plummeted 22.3% while Building Permits, which are a sign of future construction, fell almost 7%.
Manufacturing and Retail Sales Also Plummet
March Retail Sales dropped 8.7% to the lowest read ever on record. Not surprisingly with all the store closings, sales plunged nearly 51% at clothing stores, 20% at department stores and 27% at furniture stores. Restaurants and bars also saw a 27% drop in sales, which will likely fall even more in April as many restaurants have closed but for take-out and delivery. Auto dealers were also impacted, with a 27% plunge in sales while sales at gas stations dropped 17%.
The manufacturing sector also felt the impact of the virus, as the Empire State Index (which measures manufacturing activity in the NY region) for April was reported at -78.2, much lower than expectations of -35. Meanwhile the Philadelphia Fed Index plunged to its lowest level in 40 years.
Home Hack of the Week
If your grill has sat idle all winter, get it ready for the warmer weather with these cleaning guidelines from our friends at Taste of Home.
First, give your grill a once over. Check for rust as well as any bugs that may have nested during winter. Inspect hoses and replace any that have cracked or frayed.
Next do a deep clean. Turn on the grill for 15 minutes, which will make it easier to brush off any leftover buildup from the grates. Instead of using a brush (which could leave small bristles that can get in your food), cut an onion in half and rub it over the warmed grates with barbecue tongs until stuck-on particles break loose. Not only will this clean your grill, it will season it as well.
If any stuck-on grit remains, soak cooled grates in a bucket of warm, soapy water for several hours. Then use a stainless steel or manufacturer-recommended cleaner to degrease the outside of your grill and help protect it all season long. Also, take a moment to make sure all your grill tools are in working order. Replace any as needed and deep clean everything before using.
For some extra fun, let each family member pick an item on the menu for your first grill-out. Consider hosting a virtual barbecue so friends and family can join you online with a barbecue of their own.
What to Look for This Week
Once again, weekly Initial Jobless Claims will be the key report to watch when it releases Thursday. If we see another week of 5 million Initial Jobless Claims filed, we will be at or near 20% unemployment.
More housing news also follows, when Existing and New Home Sales for March will be reported on Tuesday and Thursday, respectively. Expect these figures to show sharp drops. The FHFA House Price Index will also be released, but this will be for February and will likely not show the current environment.
Ending the week on Friday, look for Durable Goods Orders for March and Consumer Sentiment for April.
The Fed has done a good job of stabilizing the markets, as Mortgage Bonds continue to trade sideways in a wide range between support at the 25-day Moving Average and overhead resistance at 104.656, which is the all-time closing high for Mortgage Backed Securities. At the moment, MBS are only about 60bp from this level. The 10-year is trading at 0.60% and will likely move lower towards the all-time low of 0.31%.
Week of April 6th, 2020 in Review
The COVID-19 pandemic continues to wreak havoc on the labor sector. The latest Initial Jobless Claims filing was another whopping number, coming in just shy of the record filings set in the previous week.
Inflation news also made headlines, as the wholesale-measuring Producer Price Index and the more important Consumer Price Index for March were released. As expected, inflation fell in March due to the lack of pricing pressure.
The National Federation of Independent Businesses released their small business optimism index for March, and it’s no surprise that it fell to 96.4 from 104.5. This is the lowest level since October 2016, with the decline from February the largest on record. The NFIB explained the obvious: “The outbreak has left few, if any, owners unscathed. The economic impact is immense, and now, the questions are how long will it last and how quickly can the small business sector recover once on the other side.”
CoreLogic released its home appreciation index for February and while this lagging report pre-dated the pandemic, there is a key – and positive – point to take away from it, as noted below.
Initial Jobless Claims Second Highest Ever
The latest Initial Jobless Claims report showed that 6.6 million people filed claims during the week ending April 4. This is just below the 6.8 million recorded for the week ending March 28, which was actually revised higher by just over 200,000 claims. It is possible claims for the week ending April 4 could also be revised higher, perhaps even marking a new record high.
For the last three weeks, Initial Jobless Claims have equaled 6.6 million, 6.8 million and 3.3 million respectively, for a staggering nearly 16.8 million total job losses. Unfortunately, this number is expected to climb as much of the economy remains shutdown.
Inflation Falls in March
As expected, inflation decreased in March due to the lack of pricing pressure. On the wholesale level, the Producer Price Index declined by 0.2% while Core PPI, which excludes volatile food and energy prices, also fell 0.2%.
At the consumer level, the Consumer Price Index (CPI) dropped by 0.4%, which was more than the expected 0.3% decrease and the biggest decline in five years. On an annual basis, the rate of inflation decreased by 0.8% to 1.5% when compared to March of last year.
Core CPI, which again strips out volatile food and energy prices, decreased by 0.1%. This was the first decline in 10 years. Core inflation also decreased by 0.3% to 2.1% year over year.
Again, we should expect inflation numbers to go down while the lack of pricing pressure remains. We also need to keep a lookout for signs of deflation, which is a decrease in the general price level of goods and services.
A Takeaway on Home Appreciation
CoreLogic released their home price index, which is an important appreciation report. The data showed that home prices rose 0.6% in February and 4.1% annually, which was an increase from 4% in the prior report. The cities with the highest annual basis increases were Washington DC (4.8%), Boston (4.5%) and Los Angeles (4.3%). While this report pre-dated the pandemic, the key takeaway is that it highlights just how strong the housing sector was beforehand.
Interestingly, CoreLogic did not report their usual forecast for appreciation over the next 12 months, due to the uncertainty caused by the coronavirus. However, before this last report, they were forecasting over 5% appreciation in the next 12 months. Housing is typically a long-term investment, and while we may see a bit of a dip in appreciation over the next year, we expect housing to lead the recovery.
Family Hack of the Week
With many schools now officially closed for the remainder of the spring and stay at home orders in effect throughout much of the country, it is understandable if kids are feeling a bit antsy. If you’re looking for some fun, online activities to do with your kids, here are two free resources for cooking together.
Every weekday at 1 pm ET, Delish’s editorial director Joanna Saltz and her kids will be cooking together on Instagram live. And no need to worry if you can’t join them live, as the videos will be saved on their Instagram feed for 24 hours. Visit @delish on Instagram to learn more, and this article to find out what they’ll be cooking each week.
Jamie Oliver’s young son, Buddy, also has a series of cooking videos on Jamie’s YouTube channel with some great options for cooking with kids. Check out the playlist here
https://www.youtube.com/playlist?list=PLcpoB2VESJme7lSxXEcXyVtFPsMI78lcL. And for more “Get Kids Cooking” options, visit https://www.jamieoliver.com/features/category/get-kids-cooking/.
What to Look for This Week
Once again, weekly Initial Jobless Claims will be the key report to monitor, as record numbers of people filing unemployment claims continues across the country.
There will also be housing data, with the National Association of Home Builder’s Housing Market Index coming out Wednesday, followed by March’s Housing Starts and Building Permits on Thursday.
Over in the manufacturing sector, April’s Empire State Index and Philadelphia Fed Index will be reported Wednesday and Thursday, respectively.
We’ll also get a look at the virus’ impact on Retail Sales when March’s report releases Wednesday.