It’s “Star Wars” Day, and I thought I would take a different approach with this. In a way, it’s like this virus has caused a battle. While we stay home to mitigate it, it’s caused all kinds of problems for public health and the health of the economy, not to mention making us resist the urge to go anywhere. The thing is, much like in the “Star Wars” franchise or any other hero’s journey, where there’s perseverance, the good guys always win. We’ll beat this and all be back together soon.
Econoday provided analysis which was used in these economic summaries.1 Let’s get to it!
International Trade In Goods
The U.S. goods deficits increased by $4.3 million to $64.2 billion in March. Global trade overall was down as a result of economies grappling with the COVID-19 virus. While the Census Bureau didn’t give specific impact numbers, it said that limited business hours or complete shutdowns certainly had an effect.
Looking at exports first, these were down 6.7% overall. With auto manufacturing shut down, exports of cars fell 17.8%. Meanwhile, consumer goods exports fell 5%. On the capital goods front, that’s often key to business operations. Exports were down 4.3%. It’s worth noting that farmers saw very little impact in terms of international exposure, at least in March, with exports only down 0.1%. Still, there are reports that the virus has made farmers destroy some crops.
On the import side, these were down 2.4% overall. Car and truck imports fell 9%, and imports of consumer goods were down 8.3%.
Looking at a longer view, exports are down 8.9% since last March and imports fell 9.6% over the same period.
S&P CoreLogic Case-Shiller HPI
Headed into the current housing market situation, things were looking pretty good. In February, home prices were up 0.4% on a seasonally-adjusted basis while rising 0.5% overall. Compared to last February, prices were up 3.5% on the year. This is a 0.3% increase in the pace of annual appreciation, the best since December 2018.
It’s worth noting that the release of both the Case-Shiller index and the FHFA index on home prices are 2 months behind the actual date they cover, so the market has very likely changed quite a bit.
Consumer confidence in April came in down nearly 32 points at 86.9, the lowest the index has been in 6 years. Analysts do note that back in the last recession, this was down into the 30s. It’s not as bad as it could be.
Looking at current conditions, this was down more than 90 points to settle at 76.4. In a sharp uptick of more than 20%, 33.6% of those surveyed said jobs were hard to get. Only 20% of the sample said jobs were plentiful. That figure is down almost 25%. When asked to comment on business conditions, 45.2% thought they were bad in comparison to 11.7% in March.
The good news is that in the minds of consumers, the future is brighter with 40% seeing business conditions better within 6 months from now. Further, 41% of the sample sees more jobs opening up. On the downside, 18.5% of those surveyed see their income decreasing within the next 6 months. This is double what it was last month. Meanwhile, those who see their income increasing fell. Additionally, there appears to be growing opposing views on business conditions. While the number of people who saw them improving in the future increased, so did those who saw them worsening, up almost 10% to 25.7%.
In other readings, inflation expectations were up 0.8% to 5.3%. This was somewhat unexpected given the drop in oil prices in April. In terms of the stock market outlook, those who expect the market to go up outnumber those who see it going down 40.8% to 36.2%. Meanwhile, buying plans for homes and appliances only fell slightly. Car buying plans did take a hit as only 7.5% of those surveyed expect to buy a vehicle in the near future, down almost 4% from March.
MBA Mortgage Applications
Mortgage applications were down 3.3% overall for the week despite the average 30-year conventional fixed-rate mortgage having a rate of 3.43%, down a couple of basis points from last week. Purchase applications were up 12% but have still fallen 20% on the year. On the refinance side, these applications were down 7% on the week.
Gross Domestic Product (GDP)
GDP, the most accepted measure of economic health, was down 4.8% in the first quarter, according to the initial estimate. It’s the first decline since 2014 and the largest since 2008. This is likely not a good sign for the second quarter because economic shutdowns didn’t really take effect until the middle of March. Consecutive quarters of economic contraction traditionally signal a recession. Moreover, consumer spending was down 7.6% for the quarter on a seasonally-adjusted basis. In the last of the topline metrics, prices were up 1.3% for the quarter.
Nonresidential investment was down 8.6%. Breaking it down into its components, there was a 15.3% drop in equipment investment and a 9.7% fall in investment in offices and other structures. Meanwhile, exports were down 8.7% in the first quarter, with a 15.3% import decrease. This actually helps GDP because exports were greater than imports, and it was up more than 1.3% on that basis, but that’s not how you want to get there as it points to broader weakness in the global economy. Indeed, overall consumer spending caused a subtraction of 5.26 points for GDP, and a decline in inventories further dropped this number by 0.53 points. Consumer spending on food and hotels was down, as well as the numbers from recreation spending and health care. Doctors in many areas of the country are still encouraging people to postpone medical procedures and visits that aren’t immediately necessary.
Ending on a good note, residential investment was up 21%, boosted by construction spending earlier in Q1. Government spending was also up 0.7% with strong investment in nondefense categories.
Pending Home Sales Index
Pending home sales were down 20.8% overall, more than double what analysts expected. This index from the National Association of REALTORS® fell more than 20 points to 88.2.
Initial jobless claims were down 603,000 to settle at 3.839 million. The 4-week moving average was down 757,000 to about 5.033 million. The impact of COVID-19 continues to bring about these high numbers of claims for unemployment. Among those who qualify for unemployment insurance, the unemployment rate is up 1.5% this week to 12.4%.
On the continuing claims side, these were up 2.174 million to come in at 17.992 million. Meanwhile, the 4-week moving average of continuing claims was up about 3.733 million to nearly 13.293 million.
Personal Income And Outlays
The impacts of the virus were definitely felt in this report. Personal incomes in March fell 2%. However, the drop in consumer spending was even more drastic, down 7.5%. Both metrics fell more than analysts expected them to. Meanwhile, prices fell 0.3% and 0.1% in core categories. Prices across these categories are up 1.3% and 1.7% respectively since last March.
ISM Manufacturing Index
Manufacturing fell deeper into contraction in April as a result of virus-related shutdowns. The index was down 7.6 points to 41.5. They threw out the component measuring delivery delays when it came to calculation of the composite score. A level of 76 in this metric would normally be tied to an uptick in consumer demand for manufacturing, but in this case, it had more to do with the shutdowns.
New orders were very weak at 27.1, while no one was hiring in April either, with the employment index at 27.5, indicating drastic shrinkage in the workforce. Even with cutdown workforces, manufacturers were able to cut into their backlogs as these fell more than 8 points to 37.8 because of a lack of new orders. This doesn’t point to good things for future hiring. Exports were down quite a bit as well.
There are 18 industries that are tracked as part of the survey. Only food and paper products saw an uptick in manufacturing. The speculation is that this is likely due to stockpiling in these areas by consumers.
Mortgage rates are now lower than they’ve ever been, according to Freddie Mac data from last week. That’s the one good thing for consumers that’s come out of this. The Federal Reserve said in its statement last week that it’s going to do everything it can to support consumer and business borrowing in order to help keep the economy going.
Because part of this includes the purchase of mortgage-backed securities intended to stabilize the mortgage market, it’s likely that rates will remain low. Still, it’s hard to imagine them going much lower than this. If you’re in the position to buy a home or refinance right now, feel free to talk to one of our Home Loan Experts about your options.
The average interest rate for a 30-year fixed mortgage with 0.7 points paid in fees fell 10 basis points to 3.23%. This is down from 4.14% a year ago at this time.
Looking at shorter terms, the average 15-year fixed mortgage with 0.6 points paid was down 9 basis points to settle at 2.77%, which is down from 3.6% last year.
Finally, the average interest rate for a 5-year, treasury-indexed, hybrid adjustable rate mortgage with 0.4 points paid fell 14 basis points to 3.14%, down from 3.68% in late April of last year.
The stock market was down quite a bit Friday. Right now, market investments are top-heavy, invested in things like Apple, Amazon and Alphabet – Google’s parent company – because it’s perceived that their business models can be transitioned easily in this environment. The stock price of Amazon fell 7% Friday as the company announced it would forgo profits in the short term, instead looking at beefing up protections for its workers as companies all over deal with the ramifications of COVID-19.
The Dow Jones Industrial Average was down 622.03 points on the day to close at 23,723.69, down 0.22% on the week. Meanwhile, on the S&P 500, the 5-day drop was 0.21% after being down 81.72 points Friday to close at 2,830.71. Finally, the Nasdaq closed at 8,604.95, down 0.34% on the week and 284.6 points on the day.
The Week Ahead
Tuesday, May 5
International Trade (8:30 a.m. ET) – International trade is composed of merchandise (tangible goods) and services. It’s available by export, import and trade balance for six principal end-use commodity categories and for more than 100 principal Standard International Trade Classification system commodity groupings.
Wednesday, May 6
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 7
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.
Friday, May 8
Employment Situation (8:30 a.m. ET) – The employment situation report measures unemployment in the labor force as well as the sentiments of workers about the job market.
There’s not that much market data out next week, and all eyes will continue to be on how the economy is being impacted by COVID-19. We’ll have it all covered in next week’s Market Update.
If all of this seems a little unimportant and dry right now, we certainly understand where you’re coming from. We’ve got plenty of home, money and lifestyle content to share with you if you subscribe to the mailing list below. As a society, we may be forced to spend a lot of time sitting around the house right now, but that doesn’t mean we have to spend all of our time in the house. A pergola is a great way to create an outdoor space that serves as an escape for you and your family. Stay healthy. May the fourth and the force be with you!
1 Important 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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