COVID-19 Is Starting To Show Up In Economic Data – Market Update

A lot of us are getting very used to sticking around our homes. Check in with your relatives! We’ll get through this together!

Unfortunately, the first big impacts of this unprecedented worldwide situation started to show up in the economic data last week for the first time.

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Econoday provided assistance with these economic summaries.¹ Let’s jump in!

Retail Sales

The February retail sales report was showing weakness even before our current situation came into effect in full force. Sales were down 0.5% overall in February. When cars and trucks were taken out, the numbers shared a 0.4% decrease. After further removing gas, the decrease was less drastic at 0.2%. Meanwhile, the only slightly good news was that sales in a control group that serves as an important indicator for gross domestic product were up 0.1%. However, all of these numbers missed expectations for at least moderate monthly gains.

Automobile sales were down 0.9% on the month. Gasoline sales fell 2.8% in February and that was before the price war between Saudi Arabia and Russia, so that’s something to really keep an eye on. Anecdotally, gas was below $2 a gallon in my area this past weekend, so it should be very interesting to see those numbers.

Sales of building materials were down 1.3% in February. Meanwhile, food and drink were down 0.5%. With many of these businesses closed across the country, this will probably be down even further next month. Sales of apparel were down 1.2%, and sales of electronics and appliances fell 1.4%.

For nonstore retailers, largely comprised of e-commerce, sales were up 0.7%. While you might think the sales would go up if people are stuck at home, it could go either way. Amazon has stopped accepting shipments of nonessential items to its warehouses, among other moves.

In one positive, numbers for the control group for January were up 0.4% in revisions after being flat in initial estimates. This is going to be a key report to watch in the coming months in order to get a read on the appetite of the American consumer.

Industrial Production

Industrial production was up 0.6% in February, a bounce back from a 0.5% decrease in January. Meanwhile, manufacturing did increase from January levels, albeit only up 0.1% after falling 0.2% in January. Meanwhile, factory capacity utilization was up 0.4% to 77% overall. That number in particular will be key to watch with a lot of factories temporarily shutting down in March.

Turning back to February, production of vehicles was up 3.5% to offset a 2.2% decline in aircraft production is Boeing 737 production shutdowns are having an effect.

Manufacturing of durable goods was up 0.3% while more disposable goods were down 0.1%. Overall manufacturing has fallen 0.4% since last February.

Mining was down 1.5% on the month, while utility production rose 7.1%. The categories are up 2.1% and 0.4% on the year, respectively. Finally, it’s important to note that January numbers included downward revision which almost completely offset the gains seen in February when you put them together.

Housing Market Index

In a rare piece of good current economic data, the housing market index, which measures the sentiments of home builders, remained pretty strong despite dropping two points in March to 72. Traffic of prospective buyers in homes was down just a single point to settle at 56. Meanwhile, both present sales and sales over the next 6 months were still strong at 79 and 75 despite moving down a little bit.

On a regional basis, builder sentiment is still strongest in the West, followed by the South, and then the Midwest and Northeast. It’ll be worth watching how much COVID-19 impacts traffic of buyers going through new homes in the coming months.

MBA Mortgage Applications

Interest rates are all over the place right now for a couple of reasons, but having a lot to do with market movement. The fact that the average rate on a 30-year fixed mortgage was up 27 basis points when this was taken to 3.74% no doubt had an impact as refinance applications were down 10% and overall applications fell 8.4% on the year. Meanwhile, purchase applications were down 1%.

Purchase applications are still up 11% when compared to the same time a year ago.

Housing Starts

Housing starts were down 1.5% in February, but this was after an especially strong January report that was again revised upward to 1.624 million starts. Housing starts came in at 1.599 million overall in February.

On the permit side, these were down 5.87% overall at 1.464 million. The good news here is that single-family permits were up, and that makes up the majority of American housing.

Jobless Claims

State shutdowns of several industries really started to weigh on jobless claims last week as they were up 80,000 overall at 281,000 when it came to new claims. The 4-week moving average of initial claims was up 18,250 at 232,250.

In terms of states that were hardest hit, California reported 15,000 initial unemployment claims, while Washington state was up 8,200, with Massachusetts reporting 2,700 claims. These are all much higher than normal. There was a note made that hospitality and food and drink places were particularly hard-hit, along with transportation and warehouse services.

On the continuing claims side, these were up 2,000 to settle at 1.701 million. Meanwhile, the 4-week average of continuing claims was down 7,000 to about 1.703 million. Expect this number to go up if these shutdowns continue for any length of time.

Existing Home Sales

Existing home sales were up 6.5% heading into this COVID-19 situation at 5.77 million. They’ve risen 7.2% on the year when compared to last February. This is the best level since the last housing crisis.

Prices were up $4,000 in the median to $270,100. This is 8% higher than it was a year ago. Meanwhile, supply in the market was up 5% to 1.47 million, but given the uptick in sales, the number of months of available homes in the market held at 3.1 months.

Mortgage Rates

Mortgage rates were up quite a bit last week, according to Freddie Mac, continuing the up-and-down nature of the last several weeks. In addition to general market volatility, lenders are raising their prices because there’s so much application volume that they have to work through the backlog. While this will have a short-term impact, the best thing to do is to only lock your rate for a short time, because a big impact on pricing is the hedge risk lenders have to take when dealing with a market that’s this up and down, so longer rate locks may cost more. Please speak with your Home Loan Expert for guidance.

The average rate on a 30-year fixed mortgage with 0.7 points paid is up 29 basis points on the week to 3.65%. This is still down from 4.28% last year.

Meanwhile, in shorter terms, a 15-year fixed mortgage that is 0.7 points paid in fees is also up 29 basis points to 3.06%, which has still fallen from 3.71% in the same week a year ago.

Finally, the average interest rate on a 5-year, treasury-indexed hybrid adjustable rate mortgage with 0.2 points paid was up 10 basis points to 3.11%, but it’s still down from 3.84% last year.

Stock Market

The Dow Jones Industrial Average was down big last week in its worst week since the financial crisis. Essentially, investors are waiting on Congress to agree on the details of the stimulus because COVID-19 is the only thing that’s moving the market to this point and none of it seems to be in a good direction.

The Dow has opened up at a 3-year low this morning even as the Federal Reserve has agreed to not limit asset purchases in order to help the economy.

As of the end of Friday, the Dow was down 913.21 points on the day to close at 19,173.98, falling 17.3% on the week. On the S&P 500, the index closed at 2,304.92. This was down 104.47 points on the day and 14.98% on the week. Finally, the Nasdaq was down 271.06 points on Friday to finish the week at 6,879.52, down 12.64%.

The Week Ahead

Tuesday, March 24

New Home Sales (10:00 a.m. ET) – This report measures the number of newly constructed homes with a committed sale during the month.

Wednesday, March 25

MBA Mortgage Applications (7:00 a.m. ET) – The mortgage applications index measures applications to mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

Durable Goods Orders (8:30 a.m. ET) – These are based on new orders placed with domestic manufacturers for factory goods.

FHFA House Price Index (9:00 a.m. ET) – The Federal Housing Finance Agency House Price Index covers single-family housing using data provided by Fannie Mae and Freddie Mac. The HPI is derived from transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.

Thursday, March 26

Gross Domestic Product (8:30 a.m. ET) – This release measures the monetary value of all final goods and services produced within the U.S. This report is released on a monthly basis with estimates on the growth in the previous quarter.

International Trade in Goods (8:30 a.m. ET) – The Bureau of Economic Analysis has begun breaking out the goods from the remaining international trade numbers to get an idea of import and export estimates for GDP calculations.

Jobless Claims (8:30 a.m. ET) – New unemployment claims are compiled weekly to show the number of individuals filing for unemployment insurance for the first time. An increasing trend suggests a deteriorating labor market. The 4-week moving average of new claims smooths out weekly volatility.

Friday, March 27

Personal Income and Outlays (8:30 a.m. ET) – This is a measurement of how much consumers are taking in as well as their corresponding spending. This also gives insight into how much is being saved.

Consumer Sentiment (10:00 a.m. ET) – The University of Michigan’s Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending.

There’s a lot of economic data out next week, but COVID-19 is all anyone is talking about at the moment. We’ll have all the updates from an economic perspective for you next week.

Stay safe and healthy!

¹ Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2020 Econoday, Inc. All rights reserved.

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