An Expected Durable Goods Drop Closes Out a Quiet Trading Week
Economic Report Monitor #21
April 24th, 2020
The stock market appears to have entered a bit of a lull after some intense volatility. The Dow drops 2% after a mostly bearish week is offset by modest gains on Friday. Both bears and bulls now sit looking at a consolidating trend where momentum could build in either direction. Shares of the popular S&P 500 ETF (SPY) closed down -1.32% for the week but with volume falling to its lowest level since the near-term bottom around $225. While investors lie and wait for the next move, economic data gauging the damage to the economy since the lockdowns began continues to be released.
Durable goods were always going to be impacted heavily by the lockdown since several of the segments are considered nonessential. New orders for March fell -14.4% with shipments slowing -4.5%. The largest drop was seen in transportation equipment dropping -41.0% with motor vehicles and parts down -18.4% and nondefense aircraft and parts falling -295.7%. The large drop in motor vehicles new orders and shipments comes after Michigan was reported as having the highest insured unemployment at -17.4%. Another flash report from MarkLines suggested March auto sales fell 38.4%. The combination of those figures suggests the auto industry is taking a big hit. Capital goods also saw a large drop in new orders, down -26.8%. The lack of new orders forced some movement on the back end as unfilled orders dropped -2.0% and inventories increased 0.6%. April is likely to see these two categories battered again as the economy looks to remain locked down for the whole month.
The final reading of the April version University of Michigan's Survey of Consumers saw a confirmation of the early report. The composite index fall from 89.1 to 71.8 with a divergence in the current conditions and expectations indexes. Current conditions fell much faster than expectations despite being near the same level. Surveys of Consumers chief economist Richard Curtin suggests consumers see a "cyclical nature of the coronavirus" as state governments eye reopening. This trend is in line so far with Fed PMIs that have seen firms report expectation sentiment that is significantly more optimistic than current sentiment.
The optimism is motivated by the hope that stimulus from the Federal Reserve and the US government will fill the gap of lost economic activity. The Fed has already shown it's able to do that in the credit markets as shown by a note issued by S&P Global. The central bank successfully combatted a surge of the investment-grade bond yield spread in late March and early April. However, the danger has not entirely subsided. The rating agency has already taken 740 rating actions as of April 21st in response to both the oil price and COVID-19 crisis (energy companies accounted for 92 of those rating changes). With more liquidity on the way through a newly passed aid package worth $484 billion targeting the most vulnerable, small businesses and hospitals, that optimism can remain for the time being.
April 24th, 2020
| From TradingView |
Durable goods were always going to be impacted heavily by the lockdown since several of the segments are considered nonessential. New orders for March fell -14.4% with shipments slowing -4.5%. The largest drop was seen in transportation equipment dropping -41.0% with motor vehicles and parts down -18.4% and nondefense aircraft and parts falling -295.7%. The large drop in motor vehicles new orders and shipments comes after Michigan was reported as having the highest insured unemployment at -17.4%. Another flash report from MarkLines suggested March auto sales fell 38.4%. The combination of those figures suggests the auto industry is taking a big hit. Capital goods also saw a large drop in new orders, down -26.8%. The lack of new orders forced some movement on the back end as unfilled orders dropped -2.0% and inventories increased 0.6%. April is likely to see these two categories battered again as the economy looks to remain locked down for the whole month.
The final reading of the April version University of Michigan's Survey of Consumers saw a confirmation of the early report. The composite index fall from 89.1 to 71.8 with a divergence in the current conditions and expectations indexes. Current conditions fell much faster than expectations despite being near the same level. Surveys of Consumers chief economist Richard Curtin suggests consumers see a "cyclical nature of the coronavirus" as state governments eye reopening. This trend is in line so far with Fed PMIs that have seen firms report expectation sentiment that is significantly more optimistic than current sentiment.
The optimism is motivated by the hope that stimulus from the Federal Reserve and the US government will fill the gap of lost economic activity. The Fed has already shown it's able to do that in the credit markets as shown by a note issued by S&P Global. The central bank successfully combatted a surge of the investment-grade bond yield spread in late March and early April. However, the danger has not entirely subsided. The rating agency has already taken 740 rating actions as of April 21st in response to both the oil price and COVID-19 crisis (energy companies accounted for 92 of those rating changes). With more liquidity on the way through a newly passed aid package worth $484 billion targeting the most vulnerable, small businesses and hospitals, that optimism can remain for the time being.
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