Good Morning on this Wednesday,
There is a lot of data out today which is starting to paint the picture of how the economy is fairing and failing due to the universal lock down. As much as enjoy being the (GNB) Good News Bear whenever possible, I pride myself first on being transparent. That said, none of the news is positive. Keep in context that this is just the first month of data since the Covid driven economic halt was initiated. The advice today for everyone is to keep some liquidity.
Before I get into the data, please allow me to share some apropos insight I read in Housing Wire:
Yes, it will get worse before it gets better – but here is the silver lining: If a great crisis had to happen in the U.S., it couldn’t have picked a better time. We are going into this dark time from a recent history of tremendous stable economic growth that was taking us toward full employment. Our immediate past abundance is giving us at least a little padding to survive this assault. In our immediate future, we have demographics on our side. We are in the early stages of the most prominent pro-housing demographic patch ever recorded in U.S. history. The number of Americans ages 26-32 is massive, much bigger than the total population of a lot of countries. The coronavirus crisis may mean that those young folks will take a little longer to earn the capacity for homeownership, but they will get there. One of the reasons why housing bears have failed so badly since 2012 is that they don’t believe in demographics. But demographics and productivity are economics, the rest is stamp collecting. It might not seem like it now, but trust me, our future is so bright that one day we will be trading in our face masks for shades.
Q1 earnings are starting to roll in and banks get the first opportunity to show their cards. Wells, Chase, Goldman and B Of A have reported in the last two days and all have seen net income drop by 40+%.
Retail sales which is arguably the most important data set after the jobs report as it accounts for 70% of economic output and is a measure of purchases at stores, gasoline stations, restaurants, bars and online, fell by a seasonally adjusted 8.7% in March from a month earlier. This is the biggest month-over-month decline since the records began in 1992
The Federal Reserve separately said U.S. industrial production—a measure of factory, utility and mining output, which includes oil and natural gas production—fell a seasonally adjusted 5.4% in March, its biggest monthly drop since 1946.
Manufacturing output, the biggest component of industrial production, decreased 6.3% from the prior month, also the biggest drop since the end of World War II.
A measure of U.S. home-builder confidence also collapsed at a record rate, with the National Association of Home Builders saying its housing market index fell to 30 in April, from 72 the prior month
To round out more data points:
- Industrial Production -5.4 vs est -4
- Capacity Utilization 72.7 vs est 73.8
- NY Empire MFG -78.2 vs est -35
By far the most concerning piece of this time is that many households don’t have much cash. Roughly half of U.S. households have no emergency savings, and those that do may not have enough. Many of those who lost jobs because of coronavirus shutdowns are expected to fall behind on rent or other bills.
I do love telling the story with pictures. Please take a moment to review some of these from the WSJ:
So here is where the forecasts start…
A new report by Unison forecasts that it will take two years for home prices to recover from the effects of COVID-19. Yet, the report warns that this recovery will not be uniform across the nation, but instead, will rely more upon regions and individual factors affecting each region. For instance, those regions particularly dependent on travel, entertainment, and oil and gas, which includes Las Vegas; Orlando; New Orleans; Honolulu; and Oklahoma City, as these areas have been hit especially hard by the current crisis.
Please stay safe and healthy and make today great!
