Market Matters

With the shortened holiday week, investors had optimism as the US continued to open the economy, although the US-China relationship has continued to worsen. President Trump announced a press conference would take place on Friday afternoon that would announce an update on the US relationship with China, one of the options the US has is that it can remove the favorable trade status of Hong Kong.

 

Initial Jobless Claims

Initial Jobless Claims for the week ending May 23rd fell by -323k to 2.123mln from the previous week’s revised 2.446mln (orig. 2.438mln). If we go back to the peak of 6.867mln claims in the week of March 28th, current levels have come back down by -4.744mln. From that record peak eight weeks ago, claims have fallen every week and by an average of 593k per week. The 4-week moving average of initial claims dropped to 2.608mln from 3.044mln, now falling for four straight weeks, though this week's drop (-499k) was the smallest of those four. Continuing claims, which lag by a week, fell -3.86mln to 21.052mln, which is the first weekly decline since the week of February 29th.

 

Durable Goods Orders

Durable goods orders for April fell by -17.2%, while ex-transportation order was down only -7.4%, and core capital goods orders dropped by -5.8%. April’s numbers were the weakest since August 2014, January 2009, and April 2010, respectively. Within the report, we see shipments down -17.7% and inventories rising +.2%, with the change resulting in unfilled orders in at -1.6%. Within the transportation sectors, motor vehicle and parts orders sank by -$25.28bln, which is the weakest print on record, however, civilian aircraft saw a rebound of +$7.51bln. Within the core sectors, we see declines in fabricated metals (-$3.65bln), primary metals (-$2.6bln), other durables (-$2.23bln), machinery (-$2.11bln), and computer and electronics (-$79mln).

 

Pending Home Sales

Pending Homes Sales for April fell -21.8% vs. the prior drop of -20.8% in March. Expectations were for only a -15% decline today. Looking year over year for April, the index is now down -33.8%, which is the largest decline since the National Association of Realtors began tracking in January 2001. Regional breakouts show the Northeast fell -48.2% month over month, and -52.6% year over year. In the Midwest, sales are down -15.9% for the month, and down -26% from April 2019. Sales in the South declined -15.4% monthly, and -29.6% year over year. In the West, we see a -20% monthly drop, and -37.2% annual decline. “With nearly all states under stay-at-home orders in April, it is no surprise to see the markedly reduced activity in signing contracts for home purchases,” said Lawrence Yun, NAR’s chief economist. Pending home sales are a future indicator of closings that are 1-2 months out, so Yun expects May to be the low point for closed sales. For the rest of the year he upgraded both home sales and prices, predicting home sales to decline by 11% in 2020 with the median home price projected to increase by 4%. In his prior forecast, sales were expected to fall by 15% and there was no increase in home price.

 

Q1 GDP

The Commerce Department reported that the second estimate of Q1 GDP fell at an annual rate of -5.0% vs. expectations of -4.8%. This is the biggest quarterly decline since an -8.4% fall in Q4 2008 during the financial crisis. Within the report today, we see weaker investment by businesses in their inventories which was offset somewhat by stronger consumer spending. Within the data, real final sales growth, which excludes inventories, was revised up to -3.7% from a prior -4.3%. The core PCE price deflator was revised down to +1.6% from the prior +1.8%. The change in contribution from personal consumption expenditures rose to -4.69 percentage points from -5.26, with the larger part of that on the goods side (+.06 pp from -.27 pp). Services' contribution was revised up to -4.75 pp from -4.99. Business fixed investment contribution was up to -.41 pp from -.43, though residential investment's slipped to +.66 pp from +.74. Overall, estimates for Q2 are dismal, some at an annual rate of nearly 40%, however, many forecasters think the country will see a strong rebound, somewhere around +21-22% as we move into July through September.