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   Brian Wesbury
Chief Economist
 
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   Bob Stein
Deputy Chief Economist
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  Coronavirus High Frequency Data

 

Sources: First Trust Advisors, Department of Labor, Redbook Research, Box Office Mojo,  Association of American Railroads, American Iron and Steel Institute,  Hotel News Now, Opentable, Transportation Security Administration, Energy Information Administration

1 Data for level, year ago level, and month ago level are all YOY % changes.

2 Data is provided daily instead of weekly.

3 Data shows year-over-year seated diners at restaurants on the OpenTable network across all channels: online reservations, phone reservations, and walk-ins. % change month over month is the current reading minus the month ago reading.

Posted on Thursday, July 2, 2020 @ 1:20 PM • Post Link Share: 
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  COVID-19 Tracker

The narrative around COVID-19 is constantly changing, so we thought we would put a one-pager out once a week with some of the charts and data that we think are important to keep an eye on to help gain some perspective. 

Click here for a PDF version with all the charts and statistics on it.

 
Posted on Thursday, July 2, 2020 @ 12:22 PM • Post Link Share: 
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  Coronavirus and Economic Update 7/1/20
Posted Under: Government • Markets • Video • Fed Reserve • Interest Rates • Spending • Taxes • Stocks
Posted on Thursday, July 2, 2020 @ 12:11 PM • Post Link Share: 
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  The Trade Deficit in Goods and Services Came in at $54.6 Billion in May
Posted Under: Data Watch • Trade

 

Implications: Another ugly report for trade in May, but significantly less ugly than April. The trade deficit in goods and services came in at $54.6 billion in May.  Both exports and imports declined, consistent with a decline in both US and global economic activity.  Exports fell faster than imports, which is why the trade deficit grew.  The total volume of trade (imports plus exports), which signals how much businesses and consumers interact across the US border, dropped 2.4% in May and is down a massive 28.0% versus a year ago.  Plugging these figures into our models suggests that net exports will be a substantial drag on real GDP growth in the second quarter.  We're now estimating a drag of 3.5 percentage points on real GDP growth, which, if accurate, would be the largest for any quarter since the late 1940s.  Expect trade to start expanding again in coming months as the shutdowns of business across the US and the world slowly dissipate, and new trade deals with key trading partners take effect.  If there was any good news in today's report it was that, for the fifth month in a row, the dollar value of US petroleum exports exceeded or met that of US petroleum imports. Horizontal drilling and fracking have transformed the global energy market and the US is no longer hostage to foreign oil.  Also this morning, we got the latest reading on initial unemployment claims, which came in at 1.43 million last week, maintaining the spate of extremely high readings since March.  However, initial claims have now dropped thirteen weeks in a row after peaking at 6.87 million in late March.  We are also closely following regular continuing claims, data for which lag initial claims by one week. Continuing claims rose 59,000 to 19.29 million in the week ending June 20 but remain substantially off the peak of 24.91 million at the beginning of May.  The reason that's important is that, typically, the economy has hit bottom when continuing claims peak or slightly before.  In other words, the economy looks to have hit bottom in either April or May, returning to growth on a monthly basis in May or June, although not on a quarterly basis until the third quarter.  In other news yesterday, cars and light trucks were sold at a 13.15 million annual rate in May.  Sales were up 8.1% from April but still down 23.7% from a year ago.  Expect sales to continue to pick up over the next few months as the economy continues to reopen.

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Posted on Thursday, July 2, 2020 @ 11:28 AM • Post Link Share: 
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  Furloughed or Unemployed?
Posted Under: Employment

In the aftermath of recent strong gains in jobs, some analysts have been latching onto pandemic-related classification errors to claim the headline unemployment rate is at best distorted to show an overly optimistic picture of the labor market, and at worst a downright lie to try and manipulate public perceptions. These accusations relate to whether a worker who is on temporary leave from a job due to the pandemic should be recorded as "employed but absent from work due to other reasons" or "unemployed on temporary layoff." If a given number of workers affected by the pandemic are classified as the former it makes the unemployment rate look better than if they are classified as the latter.

Thankfully, the Bureau of Labor Statistics has been transparently addressing this in the footnotes of their reports.  If all those classified as "employed but absent from work due to other reasons" were reclassified as "unemployed on temporary layoff" in June, the result would have been an unemployment rate of 12.1%, instead of the official 11.1%.

However, its crucial to point out that even though the level of the unemployment rate would have been higher in June, its decline would have been larger. The official rate fell 2.2% in June, from 13.3% to 11.1%.  With reclassification, the decline would have been nearly twice as large, falling 4.2% in June, from 16.3% to 12.1%.  Given that it's the change in the unemployment rate that matters for financial markets when gauging the strength of the economic recovery, reclassification reinforces the optimistic outlook.

Bryce Gill - Economist

Posted on Thursday, July 2, 2020 @ 10:56 AM • Post Link Share: 
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  Nonfarm Payrolls Rose 4.80 Million in June
Posted Under: Data Watch • Employment

 

Implications:  The wild ride continues.  After plummeting at the fastest pace ever in April, nonfarm payrolls rose at the fastest pace ever in May and have done so again in June, adding 4.8 million jobs for the month.  Even better, almost all of the gain was in the private sector, with leisure and hospitality leading the way, while retail, education & health services, and manufacturing also added a substantial number of jobs, as well. The labor market has a long road ahead to be fully-healed, but, in the past two months, has recovered one-third of the payrolls lost in March and April.  Civilian employment, an alternative measure of jobs that includes small-business start-ups, tells a similar story, up 4.94 million in June and also regaining in May and June one-third of the employment lost in March and April.  Another piece of relatively good news is that the unemployment rate, which the consensus expected to come in at 12.5%, arrived at 11.1%, instead.  That's still very high by historical standards, but much lower than the peak of 14.7% in April.  The labor force (people working or looking for work) increased by 1.7 million in June after a similar gain in May, although it's still down substantially from earlier this year.  The worst headline of the report was that average hourly earnings fell 1.2% in June.  However, recent declines are a return to normal after a huge surge in April.  Job losses in April were concentrated among lower-paid workers, so average hourly earnings rose because those still working typically made more money.  Now, as lower-paid workers are rehired, their pay levels reduce average earnings.  We like to track what the report means for workers' earnings, and today's news was good.  Total hours worked increased 3.6% in June. Multiplying hours by earnings shows that total earnings rose 2.4%.  That said, total earnings are still down 4.3% versus a year ago, which means workers have less purchasing power generated by actual production, versus purchasing power coming from government benefits.  As we said last month, the unemployment rate is going to remain at unusually high levels for at least the next few months, but today's report is a testament to the entrepreneurial spirit and how quickly businesses have been able to adapt to a global pandemic and unprecedented shutdowns of the US economy.  A full recovery is still a long way off, but there should no doubt at this point that the recovery has started. 

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Posted on Thursday, July 2, 2020 @ 10:49 AM • Post Link Share: 
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  The ISM Manufacturing Index Rose to 52.6 in June
Posted Under: Data Watch • ISM

 

Implications:  The largest monthly increase in more than forty years brought the ISM manufacturing index back into expansion territory in June.  Granted, we are rising off a low bar set during the shelter in place orders, but data across indicators continue to show the recession is behind us and the recovery has begun.   Manufacturing growth in June was broad-based, with thirteen of eighteen industries reporting expansion while four reported contraction (one reported no change).  And the comments from survey respondents were largely positive, peppered with phrases like "orders have picked up," "sales are increasing," and "order books are rebuilding."  Some industries, such as transportation equipment, remain depressed, as social distancing measures at plants are slowing a return to production, while others, like food, beverage, and tobacco products, have seen a pickup in sales as consumers have shifted their purchasing habits during these unusual times.  Looking at the major indices, the two most forward looking – new orders and production – both surged in June, returning to expansion territory.  Employment, meanwhile, is on the "bad, but not as bad" path, rising to 42.1 in June from 32.1 in May.  Compare the ISM reading on employment to this morning's ADP report, which showed 2.37 million jobs added in June.  We balance data from a number of labor market indicators, and based on the available data to-date we are projecting that tomorrow's report on nonfarm payrolls will show a gain of 3.350 million jobs in June, which would move the unemployment rate down to around 12.5% from 13.3% in May.  The one sub-index that moved lower in June was supplier deliveries, which rises when companies have difficulty meeting demand on a timely basis, and moves lower as delays ease.  The coronavirus and related shutdowns have wreaked havoc on supply chains, and that looks likely to continue, resulting in delays in the weeks and months ahead.  Watch for the supplier deliveries index to continue moving lower, but remain at elevated levels, as orders and production move back toward growth.  On the inflation front, the prices paid index rose to 51.3 from 40.8 in May, as rising costs for energy, hot rolled and scrap steel, and personal protective equipment led the index.  While these monthly reports provide valuable insight into the evolution of the virus impact, we continue to keep a pulse on what the high-frequency data tell us about activity evolving on a weekly basis.  For tracking on those indicators, please watch our blog.  In other news this morning, construction fell 2.1% in May.  A large drop in housing and smaller decline in power projects led declines across most major categories. Also on the housing front, pending home sales, which are contracts on existing homes, jumped 44.3% in May after a 21.8% drop in April.  This suggests a healthy rebound in existing home closings in May.  Finally, in home price news, the Case-Shiller national home price index, which measures prices for existing single-family homes, rose 0.5% in April and was up 4.7% from a year ago.  In the past year, prices are up the fastest in Phoenix and Seattle, while up the slowest in Chicago and New York.  

Click here  for PDF version 

Posted on Wednesday, July 1, 2020 @ 12:17 PM • Post Link Share: 
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  Coronavirus High Frequency Data

 

Sources: First Trust Advisors, Department of Labor, Redbook Research, Box Office Mojo,  Association of American Railroads, American Iron and Steel Institute,  Hotel News Now, Opentable, Transportation Security Administration, Energy Information Administration

1 Data for level, year ago level, and month ago level are all YOY % changes.

2 Data is provided daily instead of weekly.

3 Data shows year-over-year seated diners at restaurants on the OpenTable network across all channels: online reservations, phone reservations, and walk-ins. % change month over month is the current reading minus the month ago reading.

Posted on Tuesday, June 30, 2020 @ 12:01 PM • Post Link Share: 
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  Not Locking Down
Posted Under: Employment • GDP • Markets • Monday Morning Outlook • Stocks

A resurgence of new Coronavirus cases around the country has created uncertainty for investors.  Stock markets fell last week, not because of the virus, but because investors fear another round of economy-killing, government-mandated lockdowns.  We don't expect that to happen, but when the government is involved, risks are definitely higher.

After the peak in early April, the seven-day moving average for new cases bottomed on June 9 at 21,282.  Since then, they've surged, hitting 39,662 per day in the seven days through yesterday.  That's an 86% increase in only 19 days.  (Daily volatility in the data, especially over the weekend, makes it important to look at seven-day moving averages.)

Some of the increase in new cases is due to more testing, but not all of it.  States where the number of cases has increased the most include Arizona, Florida, Texas, Mississippi, Nevada, South Carolina, and California.  There is some tentative evidence that the rise in cases has been driven by higher summer temperatures in hotter states, where air-conditioned restaurants and bars have reopened.  It is also not a coincidence that cases (even in states that started lifting restrictions in early May) surged after recent social unrest (both peaceful and otherwise).  And, if we had more testing capacity back in April, antibody tests suggest that we would have seen many more cases than were actually reported.

Either way, while cases have increased, deaths from the virus have not.  According to data from Worldometer, in the seven days ending Sunday, deaths averaged 596 per day nationwide, the lowest since March, and are down almost 75% from the peak in mid-April.  In fact, in spite of all the negative publicity focused on some southern states, New York had 39 deaths per day in the seven days through Sunday, versus 36 each for Florida and Arizona, and 30 for Texas.

The average age of those testing positive for the virus appears to be falling, and we know younger and healthier individuals rarely get severe outcomes.  Also, it appears that doctors and nurses have learned a lot about treating patients with the virus.  This helps explain why cases have risen, but deaths have not.

As a result, although some states and cities have re-imposed density limits on people congregating, we highly doubt we're headed back to broad April-style restrictions.  The virus will be with us, until it is not.  Social distancing may slow the spread, but can't stop it.  People and businesses are adapting. They want to get back to normal. 

In spite of the "surge" in new cases, the TSA reports that the number of airline passengers going through checkpoints in the week through June 25th was up 12% versus the prior week.  TSA data show a steady and uninterrupted increase in passengers since bottoming back in April.   No wonder airlines are adding back flights and letting passengers know some of their flights will be full.  In other words, the data show that economic activity continues to rebound from the widespread shutdowns.  

We still project that the recovery process is going to take years; we don't expect an unemployment rate at or below 4.0% until at least 2023.  However, even with a steep drop in corporate profits in the second quarter, in the current low interest rate environment our model still says stocks are cheap, suggesting we are unlikely to see the market retest its lows. 

Brian S. Wesbury - Chief Economist
Robert Stein, CFA – Deputy Chief Economist

Click here for PDF version             

Posted on Monday, June 29, 2020 @ 11:59 AM • Post Link Share: 
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  M2 and C&I Loan Growth
Posted Under: Government • Fed Reserve

 

Source: St. Louis Federal Reserve FRED Database

Posted on Monday, June 29, 2020 @ 8:16 AM • Post Link Share: 
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These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
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