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Look forward at May 18, 2020: More dispiriting economic data and out-of-date FOMC minutes

A look forward to the May 18 week anticipates another round of dispiriting economic data as the numbers start to line up with the anecdotal evidence about conditions. The approach of the Memorial Day weekend and the early close in the bond market at 14:00 ET on Friday would normally herald the approach of summer and the start of vacation season. However, even with the lifting of some stay-at-home orders and the reopening of businesses, consumers are not going to be a position to enjoy the weekend with tight budgets and caution about activity outside the home. In any case, with mounting evidence that easing quarantines will renew the spread of COVID-19, many will be reluctant to participate in freer movement over what is technically a holiday weekend.

The release of the minutes of the April 28-29 FOMC meeting at 14:00 ET on Wednesday are not likely to prove to be very illuminating. Since that meeting, monetary policymakers have been clear that interest rates are not going anywhere anytime in the foreseeable future, that asset purchases are not going to stop even if they are slower, and that the Fed is actively engaged in keeping the economy functioning through its role as lender of last resort and using its full powers under “unusual and exigent circumstances”. The FOMC needs data to set policy and three weeks ago that was relatively scanty and did not fully capture the dire downturn in activity that began around mid-March except that the labor market was taking an unprecedented hit. Now that most of the important data for March is in and April numbers are filling out, it will be the June 9-10 deliberations that will be more informative. Also, Chair Jerome Powell participated in a webinar on May 13 that updated the FOMC’s outlook for the economy and monetary policy while stressing the unknowns and risks are still huge.

The housing market has been a casualty of the COVID-19 pandemic as unprecedented contraction in labor markets has meant the withdrawal of many potential homebuyers. Some bargain hunters remain among those with good job security who can obtain a mortgage in spite of what is likely to be a severe – if possibility short – recession. Certainly those well-qualified buyers who can take advantage of very low fixed rates for mortgage will do so.

The NAHB/Wells Fargo Housing Market Index for May at 10:00 ET on Monday probably won’t move much higher from the 30 in April and could possibly worsen. Sales of one-family homes may not drop much with some purchases already in train for the month, but expectations are not going to improve and buyer traffic will largely remain absent. Starts of new single-family homes and building permits issued in April at 8:30 ET on Tuesday will reflect the problems facing construction right now with restrictions on workforces and their movement, disruptions along the supply chain for materials, and a drying up of the pool of homebuyers.

Sales of existing homes in April at 10:00 ET on Thursday will fall further after the 8.5% decline to 5.27 million units (SAAR) in March. Even those potential homebuyers able to obtain a mortgage right now are going to be reluctant to commit in a risky economic environment. This probably means that unless necessary, home sellers are going to avoid putting units on the market so the supply of homes may remain limited while buyers are going to be looking for bargains.

Initial jobless claims for the week ended May 16 at 8:30 ET on Thursday will probably continue to ebb although the numbers of applicants are expected to remain overwhelming. Some workers have been moved off the unemployment rolls after employers gained funds in the Paycheck Protection Program, but levels in the May week are still going to be among historic highs, as well the rate of insured unemployment.
Data on state and regional unemployment in April at 10:00 ET on Friday may provide some nuance to the national rate of 14.7% and just how much any particular state has been affected by efforts to combat the spread of COVID-19 though stay-at-home orders and shuttering nonessential businesses.

The Philadelphia Fed’s Manufacturing Business Outlook Survey for May at 8:30 ET on Thursday could follow the lead of the New York Fed’s manufacturing general business conditions index and move higher, although remain in deep recessionary territory. The April reading was -56.6, the lowest since -57.1 in July 1980 and the third lowest in the series history.

The Conference Board’s Leading Economic Index for April at 10:00 ET on Thursday will have a second month of signaling a sharp downturn, but that is old news.

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