Economic data is still bleak, but shows improvement

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Consumer confidence saw a slight uptick in May, after a sharp decline in April, suggesting the economy hit bottom from the coronavirus pandemic, as states have begun reopening, but recovery may take awhile.

The Conference Board consumer confidence index increased to 86.6 in May, from 85.7 in April. The present situation index fell to 71.1 from 73.0, while the expectations index climbed to 96.9 from 94.3.

Economists polled by IFR Markets expected consumer confidence to be 88.0.

“Following two months of rapid decline, the free-fall in Confidence stopped in May,” said Lynn Franco, senior director of economic indicators at the Conference Board. “The severe and widespread impact of COVID-19 has been mostly reflected in the present situation index, which has plummeted nearly 100 points since the onset of the pandemic."

While consumers are still concerned about finances, “short-term expectations moderately increased as the gradual re-opening of the economy helped improve consumers’ spirits,” said Franco. “In addition, inflation expectations continue to climb, which could lead to a sense of diminished purchasing power and curtail spending. While the decline in confidence appears to have stopped for the moment, the uneven path to recovery and potential second wave are likely to keep a cloud of uncertainty hanging over consumers’ heads.”

New home sales
New home sales rose 0.6% in April to a seasonally adjusted annual rate of 623,000, from March’s revised 619,000.

Economists expected 490,000 sales in the month.

However, April's sales were 6.2% below the April 2019 664,000 level.

“Home buyers were active during the COVID-19 lockdown and will remain so as the economy begins to reopen,” said Yelena Maleyev, associate economist at Grant Thornton. “With incredibly attractive mortgage rates and pent-up demand from first-time buyers, there are reports of bidding wars at several times the previous pace. Realtors report increased interest in virtual tours and self-guided tours of empty houses. Under COVID restrictions, the traditionally busy Spring home-buying season could be pushed out into late Summer or even Fall.”

While mortgage applications continue to rise, credit conditions have tightened, Maleyev said. “This could become a headwind when we are looking for the economy to recover. Persistent unemployment takes a toll over time.”

Home prices were up 0.5% in March on a seasonally adjusted basis, according to Case-Shiller.

“March’s data witnessed the first impact of the COVID-19 pandemic on the S&P CoreLogic Case-Shiller Indices,” said Craig J. Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices. “Housing prices continue to be remarkably stable. The National Composite Index rose by 4.4% in March 2020, with comparable growth in the 10- and 20-City Composites (up 3.4% and 3.9%, respectively). In all three cases, March’s year-over-year gains were ahead of February’s, continuing a trend of gently accelerating home prices that began last autumn.”

Economists polled by IFR Markets expected a 0.2% increase in the national index for the month and 3.3% year-over-year.

Philly non-manufacturing
Activity at the firm-level narrowed to negative 41.4 in May from negative 82.5, its third consecutive contractionary reading, according to the Federal Reserve Bank of Philadelphia's non-manufacturing Business Outlook Survey.

The general activity level for the region also improved, to negative 68.6 in May from negative 96.4.

The new orders index came off its all-time low for the series, set last month, rising to negative 32.4 from negative 67.2.

The six months from now general business activity index for the region narrowed to negative 10.0 from negative 45.8, while at the firm level, the index climbed to positive 15.4 from negative 24.5.

Texas manufacturing sector
Texas factory activity contracted in May, but at a slower pace than in April, according to the Federal Reserve Bank of Dallas’ Texas Manufacturing Outlook Survey.

The general business activity index narrowed to negative 49.2 from negative 74.0, while the production index rose to negative 28.0 from negative 55.6, the new orders index climbed to negative 30.6, from negative 68.7, and the company outlook index gained to negative 34.6 from negative 63.4, but only 12% of respondents saw a better outlook.

“The contraction seen in the Texas manufacturing sector seems to have peaked in April, as the pace of decline slowed notably in May,” according to Emily Kerr, Dallas Fed senior business economist. While the production index gained, it remained negative, suggesting, “the contraction is moderating. A bright spot in this month’s survey is certainly the indexes for future manufacturing activity — production, new orders, capacity utilization — which all returned to positive territory in May.”

CFNAI index
The Federal Reserve Bank of Chicago's National Activity Index declined to negative 16.74 in April from negative 4.97 in March.

Production- and employment-related indicators were the biggest decliners, but all four broad categories fell in the month.

The three-month moving average, CFNAI-MA3, fell to negative 7.22 in April from negative 1.69 a month earlier.

CFNAI-MA3 readings below negative 0.70 have been linked with a greater likelihood of recession.

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Economic indicators Federal Reserve Bank of Philadelphia Federal Reserve Bank of Dallas Federal Reserve Bank of Chicago