by Calculated Risk on 6/27/2020 08:11:00 AM

The key report scheduled for this week is the June employment report to be released on Thursday.

Other key reports include the June ISM Manufacturing survey, June Vehicle Sales, April Case-Shiller house prices, and the Trade Deficit for May.

On Tuesday, Fed Chair Jerome Powell speaks on the Coronavirus Aid, Relief, and Economic Security Act.

----- Monday, June 29th -----
10:00 AM: Pending Home Sales Index for May. The consensus is for a 19.7% increase in the index.

10:30 AM: Dallas Fed Survey of Manufacturing Activity for June. This is the last of the regional surveys for June.

----- Tuesday, June 30th -----
9:00 AM: S&P/Case-Shiller House Price Index for April.

This graph shows the year-over-year change in the seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the most recent report (the Composite 20 was started in January 2000).

The consensus is for a 3.8% year-over-year increase in the Comp 20 index for April.

9:45 AM: Chicago Purchasing Managers Index for June.

12:30 PM: Testimony, Fed Chair Jerome Powell, Coronavirus Aid, Relief, and Economic Security Act, Before the Committee on Financial Services, U.S. House of Representatives

----- Wednesday, July 1st -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:15 AM: The ADP Employment Report for June. This report is for private payrolls only (no government). The consensus is for 3,000,000 payroll jobs added in June, up from 2,760,000 lost in May.

10:00 AM: ISM Manufacturing Index for June. The consensus is for the ISM to be at 49.0, up from 43.1 in May.

Here is a long term graph of the ISM manufacturing index.

The employment index was at 32.1% in May, and the new orders index was at 31.8%.

10:00 AM: Construction Spending for May. The consensus is for a 1.0% increase in construction spending.

All day: Light vehicle sales for June from the BEA. The consensus is for light vehicle sales to be 13.0 million SAAR in June, up from 12.2 million in May (Seasonally Adjusted Annual Rate).

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the sales rate for last month.

2:00 PM: FOMC Minutes, Meeting of June 9-10, 2020

----- Thursday, July 2nd -----
8:30 AM: Employment Report for June.   The consensus is for 3,074,000 jobs added, and for the unemployment rate to decrease to 12.3%.

There were 2,509,000 jobs added in May, and the unemployment rate was at 13.3%.

This graph shows the job losses from the start of the employment recession, in percentage terms.

The current employment recession is by far the worst recession since WWII in percentage terms, and the worst in terms of the unemployment rate.

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for a 1.400 million initial claims, down from 1.480 million the previous week.

8:30 AM: Trade Balance report for May from the Census Bureau.

This graph shows the U.S. trade deficit, with and without petroleum, through the most recent report. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The consensus is the trade deficit to be $52.4 billion.  The U.S. trade deficit was at $49.4 Billion the previous month.

----- Friday, July 3rd -----
All US markets will be closed in observance of Independence Day.

by Calculated Risk on 6/26/2020 05:58:00 PM

The US is now conducting over 500,000 tests per day, and that might be enough to allow test-and-trace in some areas. Based on the experience of other countries, the percent positive needs to be well under 5% to really push down new infections, so the US still needs to increase the number of tests per day significantly.

According to Dr. Jha of Harvard's Global Health Institute, the US might need more than 900,000 tests per day .

There were 602,947 test results reported over the last 24 hours. This is the most daily results reported (may be a data dump).

There were 44,373 positive tests.  This is the most positive tests ever.

Click on graph for larger image.

This data is from the COVID Tracking Project.

The percent positive over the last 24 hours was 7.4% (red line).

For the status of contact tracing by state, check out testandtrace.com.

by Calculated Risk on 6/26/2020 11:37:00 AM

Freddie Mac reported that the Single-Family serious delinquency rate in May was 0.81%, up from 0.64% in April. Freddie's rate is down from 0.63% in May 2019.

This is the highest serious delinquency rate since June 2018.

Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image

With COVID-19, this rate will increase significantly in June and July (it takes time since these are mortgages three months or more past due).

I believe mortgages in forbearance will be counted as delinquent in this monthly report, but they will not be reported to the credit bureaus.

This is very different from the increase in delinquencies following the housing bubble.   Lending standards have been fairly solid over the last decade, and most of these homeowners have equity in their homes - and they will be able to restructure their loans once they are employed.

Note: Fannie Mae will report for May soon.

by Calculated Risk on 6/26/2020 11:23:00 AM

Important: GDP is reported at a seasonally adjusted annual rate (SAAR). So a 33% Q2 decline is around 9% decline from Q1 (SA).

Note: I'm just trying to make it clear the economy didn't decline by one-third in Q2.  Previously I just divided by 4 (an approximation) to show the quarter to quarter decline.  The actually formula is (1-.36) ^ .25 - 1 = -0.095 (a 9.5% decline from Q1)

From Merrill Lynch:

2Q GDP tracking fell to -36% qoq saar from -35% following weak trade and inventory data. [June 26 estimate]
emphasis added

From Goldman Sachs:

We left our Q2 GDP forecast unchanged at -33% (qoq ar). We continue to expect -27% in the initial vintage of the report, reflecting incomplete source data and non-response bias. [June 23 estimate]

From the NY Fed Nowcasting Report

The New York Fed Staff Nowcast stands at -16.3% for 2020:Q2 and 1.5% for 2020:Q3. [June 26 estimate]

And from the Altanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2020 is -39.5 percent on June 26, up from -46.6 percent on June 25. [June 26 estimate]

by Calculated Risk on 6/26/2020 09:49:00 AM

Note: Both Black Knight and the MBA (Mortgage Bankers Association) are putting out weekly estimates of mortgages in forbearance.

From Black Knight: Forbearances Rise After Three Weeks of Declines

The latest data from the McDash Flash Forbearance Tracker shows that the number of homeowners in active forbearance rose this week after three consecutive weeks of declines.

Overall, the number of active forbearance plans is up 79K from last week – erasing roughly half of the improvement seen since the peak of May 22 – with rises seen over each of the past five business days.

Click on graph for larger image.

As of June 23, 4.68 million homeowners are in forbearance plans, representing 8.8% of all active mortgages, up from 8.7% last week. Together, they represent just over $1 trillion in unpaid principal ($1,025B).
emphasis added

by Calculated Risk on 6/26/2020 08:56:00 AM

NOTE: All of these numbers are on  a seasonally adjusted annual rate basis (SAAR).

In the Personal Income & Outlays report for May, the BEA noted that "Personal income decreased $874.2 billion (4.2 percent) in May". This decrease in Personal Income was due to a large decrease in transfer payments.

Transfer payments decreased by $1.1 trillion in May (SAAR), after increasing $3 trillion in April (SAAR).

Unemployment insurance increased from $70 billion in March (SAAR), to $430 billion in April (SAAR), to $1.28 trillion in May (SAAR).

And "Other" (mostly the CARES Act one time payments) decreased by $2 trillion in May (SAAR).

Without the decrease in transfer payments, Personal Income in April would have increased about 1.5%.

A key measure of the health of the economy (Used by NBER in recession dating) is Real Personal Income less Transfer payments.

Click on graph for larger image.

This graph shows real personal income less transfer payments since 1990.

This measure of economic activity decreased 2.9% in March, compared to February, and another 6.1% in April (compared to March).

This measure increased 1.5% in May compared to April, but is still down 7.5% compared to February (pre-recession).

by Calculated Risk on 6/26/2020 08:36:00 AM

The BEA released the Personal Income and Outlays report for May:

Personal income decreased $874.2 billion (4.2 percent) in May according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) decreased $911.1 billion (4.9 percent) and personal consumption expenditures (PCE) increased $994.5 billion (8.2 percent).

Real DPI decreased 5.0 percent in May and Real PCE increased 8.1 percent (tables 5 and 7). The PCE price index increased 0.1 percent. Excluding food and energy, the PCE price index increased 0.1 percent.

The May PCE price index increased 0.5 percent year-over-year and the May PCE price index, excluding food and energy, increased 1.0 percent year-over-year.

The following graph shows real Personal Consumption Expenditures (PCE) through May 2020 (2012 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

The decrease in personal income was less than expected,  and the increase in PCE was below expectations.

Note that core PCE inflation was below expectations.

by Calculated Risk on 6/25/2020 08:56:00 PM

Friday:
• At 8:30 AM ET, Personal Income and Outlays, May 2020. The consensus is for a 6.0% decrease in personal income, and for a 9.0% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 10:00 AM, University of Michigan's Consumer sentiment index (Final for June). The consensus is for a reading of 78.9.

by Calculated Risk on 6/25/2020 05:46:00 PM

The US is now conducting over 500,000 tests per day, and that might be enough to allow test-and-trace in some areas. Based on the experience of other countries, the percent positive needs to be well under 5% to really push down new infections, so the US still needs to increase the number of tests per day significantly.

According to Dr. Jha of Harvard's Global Health Institute, the US might need more than 900,000 tests per day .

There were 640,465 test results reported over the last 24 hours. This is the most daily results reported (may be a data dump).

There were 41,939 positive tests.  This is the most positive tests ever.

Click on graph for larger image.

This data is from the COVID Tracking Project.

The percent positive over the last 24 hours was 6.5% (red line).

For the status of contact tracing by state, check out testandtrace.com.

by Calculated Risk on 6/25/2020 02:15:00 PM

On March 31st, I wrote:

This is a healthcare crisis, and the economic outlook is based on presumptions about the course of the pandemic.

I've been updating my outlook monthly, and turning more and more pessimistic due to the poor US government response to the pandemic.

The Federal government's response has not been helpful, and in many ways, it has been counterproductive. The Vice President of the US, Mike Pence, wrote just last week in the WSJ: There Isn’t a Coronavirus ‘Second Wave’. The data has already proven Pence wrong.

Fortunately, some state and local governments have stepped up to fill the void, but in other localities, the response has been terrible.  And it is possible the pandemic will get worse in the Fall.

Some countries have been able to open their economies without an increase in infections. For example, in Japan, the economy is mostly open, however 1) everyone wears a mask, 2) there is robust contact tracing, and 3) everyone is urged to follow the 3 C's (avoid Closed spaces, Crowded places, and Close-Contact settings).   However, in the US, contact tracing is still ramping up, many people aren't wearing a mask or face covering, and many people are not following the 3Cs.

However, there is no leadership in the US to significantly change people's behavior.

It doesn't take an official lockdown to push local economies back into recession - many people will pull back as the number of cases and hospitalizations rise.  Based on recent hospitalization data, I expect further layoffs in some states like Arizona, Texas, and Florida.

I do expect another round of disaster relief in July - extending the extra unemployment benefits (perhaps at a lower level), extending the PPP, and providing relief to the States.   Without this disaster relief, the entire US economy might slide back into recession in August.

But even with another round of disaster relief, it seems likely the recovery will stall unless progress is made in slowing the spread of the virus.  The longer the widespread pandemic continues, the more structural damage to the economy.   And the more severe the economic damage, the longer it will take to recover from the pandemic.

Everyone is hoping for a vaccine in late 2020 or early 2021, but even if there is a vaccine, the damage to the economy will be extensive if we don't lower the infection rate significantly in the near term.

Perhaps there will be a sudden change in behavior while we wait for a vaccine - or some other breakthrough that will slow the spread of the virus - but I'm not sanguine.

After a decade of making fun of bearish analysts and writing "the future is bright", it pains me to be pessimistic.   I hope I'm wrong on the virus, but if I'm correct, then I expect every major economic forecast will be revised down for the 2nd half of 2020 and for early 2021.