I’m so desperate for live music (or really anything different at this point) that I was sitting there last night watching the Taylor Swift concert special with my sister. To the extent that I enjoy Taylor’s music, I would say I’m into country Taylor, so they didn’t show any of my favorites. However, if you’re a market junkie, I would say you belong with me right here.
Much like I was struggling to tie in something that happened this weekend to keep the lead interesting while relevant to this post, the economy continued to show struggles last week.
Econoday provided some information that was used in this report.1 Let’s examine the data.
Consumer Price Index (CPI)
Prices went down 0.8% in April. On the year, they are only up 0.3%. When food and energy were taken out, the drop was only 0.4%, and prices are up 1.4% on the year. This is important because falling prices generally aren’t good for economic activity. Why would you buy something now if you had the option of waiting and you thought the price was going to fall next month?
The 1.4% year-to-year increase in core categories is the smallest year-to-year inflation seen in the last 9 years. Gas prices were down 20.6% in April. Car insurance providers also began giving back or reducing prices on premiums because people aren’t driving anywhere. On the same logic, prices dropped for used vehicles as did the cost of recreation and staying away from home. Finally, airline fares fell along with apparel costs. No one is going anywhere, and they aren’t buying any new clothes for the office or trips.
That’s not to say people aren’t buying anything. They continue to stock up at the grocery store. The cost of food at home was up 2.6% in April as there’s been a rush on supplies. The overall cost of food was up 1.5% and 3.5% since last April. This is the highest increase in 8 years. Housing was also up 0.2% in both rent and owners’ equivalent rent.
MBA Mortgage Applications
Overall mortgage applications were up 0.3% on the week. Purchase applications were up 11%, while applications to refinance fell 3%. Purchase applications are still down 10% on the year, but this has been improving. The average rate on a 30-year conventional fixed mortgage went up 3 basis points to 3.43%.
Producer Price Index (PPI)
On the production side, prices were down 1.3% in April and have dropped 1.2% on the year. When food and energy were excluded, prices fell 0.3% in the month, but are up 0.6% on the year. Finally, when further removing cells at wholesale and retail sellers, prices were down 0.9% and have fallen 0.3% annually.
Prices were down 0.5% for food at the production level to go along with a 19% dip in energy prices. Wholesale and retail margins were up 1.6%. These two categories have risen 3.4% of the year because people are stockpiling.
Prices for goods were down 0.2% on the year after falling 3.3% in April. There was also a 12% downturn in portfolio management fees. Prices for gasoline were down 56.6%, which represents the largest drop ever.
Initial jobless claims were down 195,000 to a still very elevated 2.981 million. Meanwhile, the 4-week average was down 564,000 to settle at about 3.617 million.
On the continuing claims side, these are up 456,000 to 22.833 million claims. The overall unemployment rate among those who qualify for the insurance was up to 15.7%. Meanwhile, the 4-week moving average of continuing claims was up about 2.730 million to settle at 19.76 million.
Retail sales were down 16.4% in April. This was a bigger drop than the expected 11.2%. Meanwhile, there was a 17.2% downturn when cars were taken out. When further removing gas, sales were down 16.2%. Finally, looking strictly at a control group less prone to seasonal fluctuations, there was a drop of 15.5% in sales. This last one may be especially distressing because analyst estimates had only anticipated a 3.7% dip.
Car sales were down 12.4%, but they underindexed the dip elsewhere. Clothing sales were down 78.8%. Meanwhile, those selling electronics and appliances saw 60.6% losses. Furniture sales fell 58.7%, and restaurant sales dropped 29.7%. Meanwhile, sales at food and beverage establishments were down 13.1%. On the e-commerce side, sales were up 8.4% for the month as people turned online to get items they couldn’t get locally.
With a 13.7% drop in manufacturing production in April, the overall index was down 11.2%. Factories are only utilizing 64.9% of their capacity, a dip of nearly 8% from March. Utility production was down 0.9% and mining operations fell 6.1%.
It’s worth noting that while the rest of manufacturing was only down 10.3%, production from motor vehicles and parts was down more than 70%. This should improve as autoworkers in Michigan get back on the line in May after a loosening of some restrictions around the state stay-at-home order.
In a welcome bit of good news, preliminary readings from May show that consumer sentiment was up 1.9 points to come in at 73.7. The current conditions index was up almost 9 points at 83. On the downside, expectations for the future were down more than two points to 67.7. A couple of the details specifically cited in this report were positive feelings about the stimulus checks sent to Americans, while concerns over personal health as a result of COVID-19 were up 4 points, representing a concern for 61% of those surveyed.
Looking briefly at inflation expectations, people expect prices to go up 0.9% in the next year to a 3% level. It’s hard to say where this is coming from given that we’ve just seen the actual data is sending deflationary signals. Meanwhile, expectations for inflation over the next 5 years were up 0.1% to 2.6%.
Mortgage rates were up just a little bit on the long-term side last week. That said, they seem to have stabilized in a very low range. If you’re in a position to buy a home or refinance your current one right now, feel free to get started by speaking with one of our Home Loan Experts.
The average rate on a 30-year fixed mortgage with 0.7 points paid in fees was up a couple of basis points to 3.28% last week. This is down from 4.07% at the same time a year ago.
Meanwhile, looking at shorter terms, the average rate on a 15-year fixed mortgage was down a single basis point with 0.7 points at 2.72%. This has fallen from 3.53% last year.
Finally, the average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage (ARM) was up a basis point with 0.3 points paid at 3.18%. This is down from 3.66% last year.
The stock market was down most of the week as traders eyed poor economic data with a certain amount of trepidation. Additionally, tensions are rising again with China, whom the Trump administration is seeking to blame for the continuing public health and economic problems caused by COVID-19. This week, the Commerce Department chose to block semiconductor shipments to Chinese technology firm Huawei. Meanwhile, the editor-in-chief of a Chinese state-run media publication said that if the U.S. continues down this path, there could be restrictions or investigations undertaken on American technology companies, including Qualcomm, Cisco Systems and Apple.
The Dow Jones Industrial Average was up 60.08 points on the day, but down 2.65% for the week after finishing at 23,685.42. Meanwhile, on the S&P 500, the index closed at 2,863.7, down 2.26% on the week after going up 11.2 points Friday. Finally, the Nasdaq was down 1.17% over the previous 5 days, finishing at 9,014.56, up 70.84 points to end the week.
The Week Ahead
Monday, May 18
Housing Market Index (10:00 a.m. ET) – The National Association of Home Builders (NAHB®) produces a housing market index based on a survey in which respondents from the organization are asked to rate the general economy and housing market conditions. The index is a weighted average of separate diffusion indexes, including present sales of new homes, sales of new homes expected in the next 6 months and traffic of prospective buyers in new homes.
Tuesday, May 19
Housing Starts (8:30 a.m. ET) – A housing start is registered when the construction of a new residential building begins. The start of construction is defined as the beginning of excavation of the foundation for the building.
Wednesday, May 20
MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Thursday, May 21
Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The 4-week moving average of new claims smooths out weekly volatility.
Existing Home Sales (10:00 a.m. ET) – Existing Home Sales tallies the number of previously constructed homes, condominiums and co-ops that were sold during the month. Existing homes (also known as “home resales”) account for a larger share of the market than new homes and indicate housing market trends.
It’s nearly all housing data out next week. It’ll all be covered in next week’s Market Update. One quick editorial note that it will be out on Tuesday because along with the stock market and banks, Quicken Loans® will be closed next Monday in observance of Memorial Day. Gathering together and doing barbecues may not be as feasible this year, but take a moment to reflect on those who made the ultimate sacrifice for our country.
This can be a boring and increasingly bleak report, but we’ve got plenty of home, money and lifestyle content to share if this isn’t your cup of tea. Although it seems like time is a relative concept right now, Memorial Day typically does mean sales. Your local retailers would probably love to have your business if you have the means right now. Get out there and support wherever you can. Have a great week!
1Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2020 Econoday, Inc. All rights reserved.
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