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Recap: The five District Bank surveys of manufacturing and services lifted off record lows in May

With all five District Bank surveys of manufacturing in hand, conditions look good for a mild increase in the ISM Manufacturing Index for May when that report is released at 10:00 ET on Monday, June 1. An average of the five headline indexes from the New York, Philadelphia, Richmond, Dallas, and Kansas City Feds is at -37.4 in May, a substantial gain from the -58.3 average for April. The average has a very strong correlation (0.950) with the ISM index. I would anticipate an increase from the ISM’s 41.5 reading in April, perhaps as much as to 43.0 for May.…

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First Cut: May Kansas City Fed Services Composite Index off record low in April

The Kansas City Fed’s Services Survey reflected a sharp improvement in the general business activity index at -21 in May after the record low of -58 in April. The six-month outlook index climbed to -2 after -28 in the prior month. Survey respondents’ comments indicated that the Paycheck Protection Program had in many cases provided a lifeline to keep service businesses afloat and able to ramp back up when economic conditions are less restrictive. While activity is definitely consistent with a contraction, services have had time to think, adapt, and plan for the future. While the index for revenues was…

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First Cut: May Final Consumer Sentiment Index remained among lowest readings in 8 years

The University of Michigan Consumer Sentiment Index for May was revised down to 72.3 in the final report (previously 73.7). It was the second lowest reading the 72.3 in July 2012 after the drop to 71.8 in April. While consumers were a little more confident in May about current conditions at 82.3 after 74.3 in the April report, six month expectations were lower at 65.9 after 70.1. In May there was some relief from signs of scattered resumptions of public activity and/or from payments from government programs to replace lost income. However, risks and uncertainties about the outlook continued to…

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First Cut: Personal income jumps in April on government transfers while wages and salaries decline

Personal income rose 10.5% in April after declining 2.2% in March. However, wages and salaries were down 8.0%, accelerating the 3.5% decrease in the prior month. Instead, it was a near doubling of payments of government social benefits that drove the sharp rise. Overall social benefit payments jumped 91.1% to $6.291 billion with a 518.0% rise in unemployment benefits to $0.430 billion and a 491.0% jump in “other” benefits to $3.122 billion. The latter is likely related to things like the Pandemic Unemployment Assistance program. The massive rise in government payments in a few categories is a short-term factor. While…

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First Cut: Kansas City Fed Manufacturing Composite Index improved in May, if still in contraction

The Kansas City Fed’s Manufacturing Composite Index remained consistent with recession in May at -19, but was decidedly better than the series low of -30 in April. The six month composite index rose to -2 in May from -6 in April. Survey respondents’ comments suggested that after the initial shock of widespread shutdowns and plunging oil prices and their attendant uncertainties, manufacturers were finding their way through the situation. Right now it appears they want guidance and hard information on which to base their next business decisions as they gauge the risks of reopening before the COVID-19 pandemic is fully…

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On the radar: St. Louis Fed Financial Stress Index nears neutral at end of May 22 week

The St. Louis Fed's Financial Stress Index fell 0.495 point to 0.120 in the week ended May 22, its lowest since -0.587 in the February 21 week. The index is nearing the neutral mark of 0 (zero) that would suggest that markets are functioning more normally. It doesn't change that the economy is in recession but it does suggest that credit markets are recovering. If these still need an assist from central bank liquidity programs, the demand could be easing.

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First Cut: Pending Home Sales Index well into recessionary territory in April

The NAR's Pending Home Sales Index fell 21.8% to 69.0 in April from March and was off 33.8% from the year-ago month. The steep decline in pending homes sales in the past two months presages further weakening in sales of existing homes with few contracts to close. Extraordinarily attractive mortgage rates may keep some well-qualified buyers in the market, but given the level of unemployment and collapse in consumer confidence, both borrowers and lenders are going to be cautious about taking out a mortgage. Sales are likely to be slow for some months yet. Sales were down sharply in all…

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On the radar: Freddie Mac 30-year fixed rate hits new low as of May 28 data

Freddie Mac reported weekly mortgage interest rates were down across the board as of May 28. Exceptionally low rates may be enough to tempt well-qualified buyers out into the market, especially if they believe they can negotiate a better prices while the housing market is on a downturn. The 30-year fixed rate was down 9 basis points to 3.15% in the week, a new weekly low for the series. For May to-date, the rate averaged 3.23%, a new low for the monthly data. The 15-year fixed rate was down 8 basis points to 2.62% in the week, the lowest weekly…

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First Cut: Durables orders decline in double digits for a second month in a row in April

New orders for durable goods slumped for a second month in a row at down 17.2% in April after down 16.6% in March. A 47.3% decline in transportation orders was a large reason for the decline as orders for aircraft and motor vehicles plummeted. However, even the down 7.4% excluding transportation was weak and due to sharp declines across sectors. The odd man out was a 1.7% increase in communications equipment in April after the 0.6% rise in March. Individuals and offices have needed to upgrade their infrastructure with work-from-home still very much in effect, and businesses to improve their…

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First Cut: Second estimate of 1Q GDP revised down, but the story is much the same

The second estimate of real GDP for the first quarter was down 5.0%, a downward revision from down 4.8% in the advance report. If personal consumption expenditures were less of a negative in the second estimate, gross investment was more of a negative than previously through. The positive contribution from net exports was a tiny bit larger, while the change in private inventories was much more of a negative after annual revisions to the data. The second look at conditions in the first quarter is still substantially the same in tone. These numbers won’t change the assessment of the performance…

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