Thursday’s data better, but 'nothing to brag about'

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Economic indicators released Thursday still showed the effects of the shutdown, but were, in most cases, improvement from the prior reports, suggesting April may have been the nadir.

Federal Reserve Board Vice Chair Richard Clarida said he expects improvement in the second half of the year, and the data then will offer a clearer picture of the economic damage caused by the closures to stop the coronavirus pandemic.

“In terms of inflation, my projection is for the COVID-19 contagion shock to be disinflationary, not inflationary, and the data we are seeing so far are consistent with this projection,” Clarida told the New York Association for Business Economics via video.

Edward Moya, senior market analyst at OANDA, said while both initial jobless claims and Markit preliminary PMI readings “showed improvements,” they “were nothing to brag about.”

Initial jobless claims fell to a seasonally adjusted 2.438 million in the week ended May 16, from the previous week’s downwardly revised level of 2.687 million, originally reported as 2.981 million, the Labor Department said Thursday.
“The pace of initial jobless claims continues to decline, as the nine week total rises to 38.6 million,” Moya said. “First time filings for unemployment came in slightly above expectations at 2.44 million, while continuing claims printed at 25.07 million, also above the 24.25 million consensus estimate. The weekly jobs figures are disheartening, but at least headed in the right direction, with most states showing declines.”

Economists polled by IFR Markets expected 2.425 million claims in the week.

Continued claims increased to 25.073 million in the week ended May 9 from 22.548 million a week earlier.

“Although claims are still elevated, they have now declined for seven consecutive weeks,” said Roiana Reid, U.S. economist at Berenberg Capital Markets. “If they continue to decline near the recent trend (-369k on average over the last two weeks), they could return close to pre-pandemic levels around the end of June/early July. Unfortunately, this suggests the unemployment rate will increase again in June.”

Other data
Manufacturing remained weak in May, as measured by the Federal Reserve Bank of Philadelphia's Business Outlook Survey.

The general activity index climbed from its 40-year low in April to negative 43.1 in May from negative 56.6.

Economists polled by IFR Markets expected negative 45.0 level.

“The latest U.S. PMI data confirmed Wall Street’s belief that collapse in the service and manufacturing readings bottomed out in April,” Moya said. “May’s preliminary readings still has private-sector firms deep in contraction territory with new orders posting the second sharpest reduction since the Great Recession." Recovery, he said, will be slow with "staggered reopenings and haunting fears that a second wave of coronavirus is inevitable later this year.”

Leading indicators
The Leading Economic Index fell 4.4% in April to 98.8, not as dramatic as the 7.4% drop off in March.

Economists polled by IFR Markets expected a decline of 5.7%.

The coincident index fell 8.9% in April to 96.6, after a 1.5% decline in March, while the lagging index increased 4.1% in April to 115.3, following 1.7% increase in March.

“The erosion has been very widespread, except for stock prices and the interest rate spread which partially reflect the rapid and large response of the Federal Reserve to offset the pandemic’s impact and support financial conditions,” said Ataman Ozyildirim, senior director of economic research at The Conference Board. “The sharp declines in the LEI and CEI suggest that the U.S. economy is now in recession territory.”

Bart van Ark, chief economist at The Conference Board, said, “The breadth and depth of the decline in the LEI suggests that an imminent re-opening of some sectors does not imply a fast rebound for the economy at large.”

Home sales
Existing home sales declined 17.8% in April, to a seasonally adjusted 4.33 million annual rate, according to the National Association of Realtors. Sales were down 17.2% from last April. All four regions fell compared to last month, and from the same month last year, with the West dropping the most.

“April’s bleak data highlight both sellers pulling their listings off the market, and buyers delaying purchase decisions during these challenging economic times,” said Joel Kan, associate vice president of the Mortgage Bankers Association. “The number of homes for sale on the market fell to a record-low, which drove the median sales price up over 7%.”

Economists polled by IFR Markets expected a 4.30 million level of sales.

April’s read was the lowest since July 2010 and the drop was the largest for a month since July 2010.

“With many states around the country now gradually reopening, the five-week rebound in purchase applications reported in MBA’s Weekly Applications Survey may be an indicator that April is the low point for home sales. Activity may start to stabilize and move upward over the next few months,” Kan said.

Williams: recovery unclear
When social distancing rules are relaxed, "we will get a better understanding of how different industries are affected. We know that travel, hospitality, and retail have all been hard hit," said Federal Reserve Bank of New York President John Williams.

“What we don’t know is what the shape or timescale of the recovery will be," he said. "It’s going to be some time before we have a clearer view of the effects on other industries, including autos, higher education, manufacturing, and professional services.”

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