Market Update – 6/1/2020

41 Million File for Unemployment Since Beginning of Pandemic

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. 

 Initial Jobless Claims

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. 

What to Look for This Week  

We’ll get news from the manufacturing sector with May’s ISM Index on Monday. Then, all eyes will be on the labor sector with three key reports ahead. First up, look for the ADP Employment report for May on Wednesday, followed by the latest weekly Initial Jobless Claims as usual on Thursday. Ending the week, Friday will bring the Bureau of Labor Statistics Jobs Report for May, which features nonfarm payrolls, the unemployment rate and average hourly earnings. 

Technical Picture 

The Fed continues to go a good job of stabilizing the markets with its ongoing purchases of Mortgage Backed Securities. Over the past month, MBS and the 10-Year have traded almost perfectly in the range between their respective 25 and 50-day Moving Averages. But those ranges are now coiling like a spring and are so narrow that a breakout has to occur. While MBS remain in this narrow range, we will be closely watching for any breaks to the up or downside. 


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