Market Update – 5/4/2020

Reports Show More than 20 million Lose Job

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.  

Technical Picture 

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%.  

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