Things are really starting to get back to normal from a day-to-day business standpoint in Michigan after the disruptions caused by COVID-19. We got a chance to get together with family and friends and family this weekend, so that was cool.
When looking over all measurements of the economic disruptions the virus caused, we got an encouraging sign from Friday’s unemployment report. There’s a chance we may have hit bottom.
Headline News
Econoday contributed analysis to this report.1 Let’s get into what happened last week!
ISM Manufacturing Index
The manufacturing sector was slightly better in May than it was in April, but it’s still showing quite a bit of weakness. It was up 1.6 points to 43.1 overall. As a reminder, a number under 50 indicates a slowdown in manufacturing, so this isn’t really that great, but it does mean that the slowdown isn’t as severe as last month.
New orders were at 31.8, which was up 4.7 points, while overall production was up 5.7 points at 33.2. Meanwhile, employment was higher, at 32.1 compared with 27.5. New export orders recovered a bit, up 4.2 points to 39.5. Prices paid for supplies stemmed the tide a bit, up 5.5 points to 40.8. Meanwhile, backlog orders were up 0.4 points to 38.2.
None of those numbers are as high as the headline number, so how did it get there? Unfortunately, here the culprit is a massive spike in delivery times, not because manufacturers are struggling to keep up with high demand, but because the virus caused bottlenecks in the supply chain. This number is at 68 and has skewed things higher in a dramatic way. It’ll be interesting to keep an eye on this.
MBA Mortgage Applications
Overall mortgage applications fell 3.9% last week as refinance applications were down 9% regardless of the fact that the average rate on a conventional 30-year fixed mortgage in this index was down 5 basis points to 3.37%.
However, what continues to be a bit of a surprise given the economic conditions is the purchase index. Applications for the week were up 5% and have now gone up 18% compared to the same time a year ago.
International Trade
America’s trade deficit with the rest of the world increased by $7.1 billion to $49.4 billion in April. However, there was a decline in global trade in general in April as countries really tried to get the virus under control.
Going down a level further, the services surplus fell a bit, down to $22.4 billion. On the goods side, the deficit increased by $5.8 billion to $71.8 billion. Still, indicating a slowdown, imports are down 22.4% on the year with exports falling 27.7% compared to last April.
Taking a look at individual industries, on the services side, exports of travel and transport were down $3.4 billion and $2.3 billion, respectively. When looking at goods, capital goods exports, industrial supplies and cars and trucks all saw sharp downturns. When it comes to imports, automobiles were down quite steeply, along with falls in capital goods and consumer goods.
Lastly, the deficit with China saw a $9 billion increase to an even $26 billion. This will be closely watched, given a new ramp-up in tensions with China, but we’ll get to that in a minute.
Jobless Claims
There were 1.877 million jobless claims filed in the last week, which is down 249,000, but still very elevated. Meanwhile, the 4-week moving average of continuing claims was down 324,750 to come in at 2.284 million.
There are signs that the recovery in terms of continuing claims may be a bit uneven. After falling to 14.3% last week, the unemployment rate for those who qualify for the insurance was up to 14.8% in the latest data. Continuing claims were up 649,000 overall to 21.487 million. However, the 4-week moving average of continuing claims was down 222,500 to come in at about 22.446 million.
Employment Situation
In a development absolutely no one was expecting, there were 2.509 million jobs added to nonfarm payrolls in May. The expectation had been for nearly 8 million jobs to be lost. The unemployment rate fell 1.3% to 13.3% in May, which is still very elevated given that we had been at around 3% as of a few months back.
Things were a bit uneven. To begin with, the private sector added 3.094 million jobs in May and there was a decline of 525,000 in government payrolls. In the manufacturing sector, 225,000 jobs were added.
There were 1.239 million jobs added in the leisure and hospitality sectors. Meanwhile, 464,000 jobs were added in construction, 424,000 in education and health services, along with 367,800 added in retail.
The labor force participation rate ticked up a bit to 60.8%, from 60.2% in the prior month. Meanwhile, average earnings were down 1% on the month, but are still at 6.7% in terms of annual increases. It’s likely that the return of some low-wage workers impacted this. The average number of hours worked last month rose to 34 hours, 42 minutes, which is a sharp rise for this reading from 34 hours, 18 minutes previously.
Before celebrating too much, it’s worth noting that there were some discrepancies in the data, specifically around the fact that fewer households were reached. The same was true for the payroll numbers, but to a lesser extent. There was also some confusion around the fact that the definition of employment is murky given the level of furloughs at the moment. Depending on how they are counted, the unemployment rate could be as much as 3 points higher.
Mortgage Rates
Mortgage rates were up a bit last week. There’s been more optimism on the economy and that always helps push more money into stocks and away from bonds, but they’re still very low. If you’re interested, we recommend speaking with one of our Home Loan Experts about your options.
The average rate on a 30-year fixed-rate mortgage with 0.7 points paid in fees was up 3 basis points to 3.18% last week. This is still down from 3.82% last year.
Meanwhile, the average rate on a 15-year fixed mortgage with 0.7 points paid in fees was unchanged at 2.62%, down from 3.28% a year ago.
The average rate on a 5-year treasury-indexed, hybrid adjustable rate mortgage fell 3 basis points last week with 0.4 points paid to come in at 3.1%, having dropped from 3.52% at this time in 2019.
Stock Market
It was a big week on the stock market, or more accurately, a huge Friday. On an unemployment report that surprised in a very good way, the Nasdaq actually hit a new record, with the other indexes also seeing massive gains. It was enough for traders to largely ignore increasing tensions with China as the Trump administration banned the country’s airlines from flying to the U.S. in retaliation for a similar move from Chinese authorities.
The Dow Jones Industrial Average was up 829.16 points Friday to close at 27,110.98, up 6.81% on the week. Meanwhile, the S&P 500 finished the week at 3,193.93, rising 81.58 points on the day and finishing up 4.91% for the week. Finally, the Nasdaq closed up 3.42% for the week after rising 198.27 points Friday to a record level of 9,814.08.
The Week Ahead
Wednesday, June 10
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.
Consumer Price Index (CPI) (8:30 a.m. ET) – The consumer price index measures changes based on the price of a fixed basket of goods and services purchased by consumers.
Thursday, June 11
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.
Producer Price Index (PPI) (8:30 a.m. ET) – The Producer Price Index measures the average change over time in prices received by domestic producers for the sale of goods and services.
Friday, June 12
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.
In terms of actual economic data, there’s not much, but we get some inflation metrics as well as a read on how the consumer is feeling. Much more important will be the conclusion of the Federal Reserve meeting Wednesday afternoon. People will be looking to see what the Federal Reserve’s reading on the economy is.
If economic data and mortgage rates aren’t your deal, we’ve got plenty of other home, money and lifestyle content to share with you if you subscribe to our mailing list below. While we’re still in a stage where time seems very relative, summer is approaching, and you might be thinking about different landscaping ideas. If you don’t have much of a lawn, xeriscaping might be an appropriate option. Have a great week!
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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