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Whetstone Analysis is closing down as of July 2, 2020

With thanks and apologies to my readers, Whetstone Analysis will officially close down as of 12:00 Noon, Thursday July 2. The website will remain open for a time, but no new content will be posted. -- Theresa Sheehan

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On the radar: St. Louis Fed Financial Stress Index still a bit higher as of June 26 week

The St. Louis Fed's Financial Stress Index edged 0.036 point higher to 0.253 in the week ended June 26 after rising to 0.217 in the prior week. These aren't readings consistent with same level of stress seen in the early days of the pandemic, but reports of rising infection rates and the return of more stringent social distancing orders have heightened stresses somewhat. The visibility of central banks and their responsiveness to any hint of less smooth functioning in financial markets should keep the tension from escalating.

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On the radar: Freddie Mac fixed rates hit a new record low as of July 2

Freddie Mac reported the 30-year fixed rate mortgage at 3.07% as of July 2, the lowest on record. That brought the average for June to around 3.14%, a record low for monthly rates. The 15-year fixed rate mortgage was at 2.56% for the week and the June average was 2.59%. These were also record lows for the week and month. The 5/1-year ARM rate was down to 3.00% for the week and 3.07% for the June average which were just above record lows. Rates like this are going to keep consumers in the housing market and possibly spark another wave…

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First Cut: May new orders for factory goods benefit from pent-up demand

New orders for all factory goods were up 8.0% in May from June after falling 13.5% in April from March (previously down 13.0%). The increase was much as expected. New orders for durable goods were up 15.7% in May, in large part due to a surge of 82.0% in transportation related to motor vehicles and defense aircraft orders. However, excluding durables, new orders were up 3.7% which indicated that there was some resurgence of demand in most other sectors. Nondurables orders were up 2.0% and reflected higher prices for food and energy goods. In any case, the dollar value of…

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First Cut: Initial jobless claims levels start to stabilize in recent weeks, but another increase could be on the horizon

Initial jobless claims fell an unadjusted 14,575 to 1.446 million in the week ended June 27. New filings for benefits were down for a 13th week in a row, but the pace has slowed significantly in the last couple of reports. However, with some regions where COVID-19 infections are on the rise, fresh restrictions on business could mean that layoffs are going to start climbing again and with them new filings for benefits. Beyond the now usual mention of COVID-19 as a driver in claims data, the Labor Department cited no special factors. The only state to estimate claims was…

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First Cut: A strong June employment report is only partially reassuring

The 4.8 million rise in nonfarm payrolls in June reflects the survey reference period that closed out on June 13. At that time things were looking rosier for the economy with activity in leisure and hospitality opening up and fiscal programs to cover payrolls in wide effect. While the level is well above the median expectation for job gains in June and appears to have upward momentum from the 2.699 million increase in May, it should be read with caution. Some of those government programs will stop providing funds by the end of July and an upsurge in COVID-19 infections…

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First Cut: June ISM Manufacturing Index exceeds expectations, back in mild expansion

The ISM Manufacturing Index for June exceeded market expectations and reached 52.6 after 43.1 in May. While conditions for manufacturing are far from booming, this is the highest reading since 53.4 in April 2019. Some of the firming can be attributed to a rebound after unusually slack orders and production in April and May. It would not be a surprise if the index gave back some of the activity when the July numbers are reported. Nonetheless, it offers promise that the worst of the COVID-19 pandemic impacts on the factory sector are past and that conditions will be more expansionary…

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First Cut: ADP National Employment Report for June has solid gains and a massive upward revision for May

The ADP National Employment Report for June had an increase of 2.369 million after a revised 3.065 million increase in May (previously a 2.760 million decrease). The June ADP data brings its numbers back in alignment with the BLS Employment Situation for May. It is also more-or-less on target with the survey median estimate for private payrolls when those numbers are released at 8:30 ET on Thursday (not Friday, which is a federal holiday in the US). It is hard not to view the massive upward revision of 5.825 million in May as ADP fudging the numbers to make them…

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First Cut: June Challenger report shows where COVID-19 is decreasing need for workers in leisure and hospitality and increasing it in health care

Announced layoff intentions were down 57.1% in June to 170,219 after the 397,016 in May in the Challenger report. Compared to the year ago level of 41,977, June was up 305.5%. Plans to lay off workers remained elevated, although these were the fewest in the last four months. It should be no surprise that layoff intentions were concentrated in entertainment/leisure (92,954 or 54.6% of the total) where some rehirings are going to be rolled back after a resurgence in COVID-19 cases and government (24,911 or 14.6% of the total) where state and local governments are facing disastrous declines in tax…

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On the radar: Five District Bank surveys of service sector point to less contraction in June, but still in recession

The five District Bank surveys of the service sector in June showed overall conditions remained weak. What signs of expansion there were only tentative. While reopening of businesses with face-to-face interactions helped bring some workers back on payrolls and improved revenues, the situation is fraught. Recent spikes in COVID-19 rates – particularly in those regions that may have reopened some activity too soon and/or where the public did not adhere to precautions to prevent disease spread – could easily result in reimposition of restrictions on activity. Hospitality businesses in particular could be forced to shutter once again just as the…

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