Rich Pedroncelli/AP
Consumer Sentiment Index
The University of Michigan’s sentiment index fell to 78.1 on June 26 from its June 12 reading of 78.9. Although it is above its April low of 71.8, it is still far below its pre-covid reading of 101 on February 28. The data released every two weeks measures how optimistic consumers feel about their finances and the state of the economy. Consumers appear to have growing optimism in the recovery but at the same time remain uncertain about economic prospects as coronavirus lingers and continues to affect the economy.
Consumer Spending
As businesses reopened and many people returned to work, consumer spending increased by 8.2% in May, but fell short of the 10% forecast by economists and remains 12% below its February pre-pandemic levels. People have stepped up their purchasing of cars, mortgage applications have risen, and have begun to eat out more as states began to gradually reopen that month. There is doubt as to whether we’ll see similar increases in future months, as expanded unemployment benefits- the main driver of increased household incomes- are set to expire at the end of July.
Unemployment Claims
On Thursday the Labor Department reported applications for unemployment benefits were 1.48 million, slightly below the 1.5 million from the previous week. It appears most of the pandemic-induced layoffs are tempering off, but hiring seems to be tepid, as the number of those continuing to receive jobless benefits hovers around 20.5 million.
Existing Home Sales
On Monday the National Association of Realtors (NAR) reported that existing home sales fell 9.7% in May, and were down 26.6% compared to the same period last year. However there were indicators that the worst has passed and that potential home buyers simply postponed their decision as opposed to abandoning it entirely. In the previous week realtor.com released data indicating the number of Americans applying for home mortgages has hit an 11-year high, particularly in suburban and rural areas.
New Home Sales
On Tuesday the Commerce Department reported a 16.6% increase in new home sales, rising from a revised 580,000 in April to 676,000 in May, beating analyst estimates of 650,000. The difference between existing and new home sales is that with the former, the reporting of the transaction occurs after the sales contract closes, usually between 30-60 days. This means existing home sales is a form of a lagging indicator, reflecting information that is a month or so old. New home sales (reported by a different agency) are captured at the signing of the contract, making it a leading indicator, and the home itself could be at any stage of completion- anywhere from before construction even starts all the way to completion.
Taken together, we can see that home sales were indeed hit hard in the midst of the pandemic but now we’re seeing a rebound in home buying activity as the economy gradually reopens.
Covid-19
Coronavirus continues to accelerate across the United States, particularly in Arizona, Texas and California. In the week prior, new daily cases rose above 30,000 for the first time since early May. Texas Governor Greg Abbott stated earlier in the week cases has been increasing at an “unacceptable rate” and reiterated the importance of wearing masks and social distancing, and began to allow local officials to place restrictions on outdoor gatherings of 100 people or more. On Friday, Texas and Florida placed a halt on drinking at bars and Arizona saw a surge in infections.
Markets
The major indices were down for the week as investors digested all of the above information, primarily the surge of covid cases across the county, prompting fears of possible future lockdowns, or at the very least, limited economic growth as we navigate reopenings amid the ongoing pandemic. The Dow and S&P were down 3.3% and 2.9%, respectively, for the week, while the Nasdaq fell 1.9%. Among the hardest hit sectors on the Friday draw-down were energy and financials as the Federal Reserve “ordered banks to cap shareholder dividend payouts to preserve capital and barred share buybacks in the third quarter.”
On Friday the yield on the 10-year treasury fell to 0.636% from 0.674% on Thursday, while gold rose to $1,770.84 after closing at $1,759.77 the previous day. Both of these movements illustrate investor movements into alternative asset classes away from stocks.
Monday - Pending Home Sales Index
Tuesday - Case-Shiller national home price index (YoY)
Wednesday - ADP Employment Report; FOMC Minutes
Thursday - Initial and Continuing Jobless Claims, Nonfarm payrolls and Unemployment Rate
Friday - Independence Day Holiday