Dallas Fed Survey Points to Less Economic Damage Than Expected
Economic Report Monitor #32
May 26th, 2020
An early week starts with a slew of economic indicators including some business activity surveys and real estate data releases. Stocks roared higher in the morning and throughout the day until the last two hours when some gains were lost. Overall, market technicals feel stronger after holding some key support lines this week. The COVID-19 crisis appears to be settling down, but uncertainties about reopening remain intact.
Two business activity-based reports were released today from the Chicago and Dallas Feds. The Chicago Fed National Activity Index, which is still on its April issue, revealed a massive drop from -4.97 to -16.74. This index reading blows past lows seen in previous recessions in 2009, 2001, and even before that. Seventy-nine indicators were negative in April with massive drops in production and income-related and employment-related indicators. The largest blows came from a -11.2% drop in industrial production which lead production indicators to a -5.63 contribution and a -20,537,000 drop in payrolls which lead employment indicators to a -9.06 contribution. Thirty-four April indicators have yet to be released so there could be more pain coming.
The Dallas Fed Manufacturing Survey gave a glimpse into May's business activity following deep losses in April. Production, capacity utilization, and new orders all saw a robust increase as those reporting decreasing data stabilized to reporting no change. None of those indicators saw a quarter or more of respondents reporting increasing data. Finished goods inventories remained flat likely a result of production and purchasing freezing simultaneously. Prices paid for raw materials jumped more than prices received, but this could be a regional phenomenon as gasoline prices typically lag crude oil prices. Employment data improved as well following the improvement in production. Expectations improved greatly as well. Production and capacity utilization both jumped over 40 pts to the high 20's. New orders also saw a sizable jump to 17.8, up 31.5 pts. So far it seems that optimism hasn't for the recovery has not been reversed as reopening plans are deployed.
An additional question probed business executives' current status in the deficiencies of the COVID-19 economy. One question asked how long would firms last if they were to continue to receive revenues at current levels. Over half (59.5%) confirmed they could last longer than a year with another 17.5% saying they could last more than 6 months. Both time periods are larger than how long most think effects will last. On the other side of the coin, only 9.0% of firms appear to be in immediate danger, only lasting 3 months or less at current revenue levels. The questions following addressed the use of PPP loans by responding firms. Just over 60% of firms said they had applied for a loan with 93.1% of those firms receiving a loan. The responses to both of these questions suggest major economic damage, at least in the Dallas Fed region, has been avoided as a result of the swift deployment of stimulus. Surveys from other more hard-hit regions could tell a different story.
Two measures of home prices in March were released by the S&P and FHFA. Both revealed modest gains that seemed to defy COVID-19 effects. The S&P CoreLogic Case-Shiller US National Home Price Index saw year-over-year growth increase from 4.2% to 4.4%. The 20-City Composite saw slightly faster acceleration of growth with year-over-year gains up to 3.9% from 3.5%. The FHFA also reported similar stable monthly growth with March house prices up just 0.1%. Growth in the first quarter of 2020 was 1.7%.
The surprise in real estate data come in new home sales which bucked expectations and grew 0.6% in April. Some forecasts saw a monthly decline of over -22%. The growth was strongest in lower-priced homes, specifically the $150,000 to $199,999 band. Growth was restricted to the Northeast, Midwest, and South regions. After a sharp increase in supply in the previous month, new home sales actually fell -1.6% in April. With the worst of the COVID-19 crisis behind, it looks like the real estate market may be safe from any further significant slowdowns. Of course, the uncertainty of a possible second means things can go south at any time.
Finally, Conference Board released its consumer conference reading for the month of May. After April, this month's confidence increased only 0.9 pts to 86.6. As seen in previous consumer confidence reports, current conditions decreased, though slightly, while future expectations saw a slight increase. Overall through the COVID-19 pandemic, the current conditions index fell almost 100 points. Employment sentiment was mostly flat as most respondents gravitated towards expecting no change in the employment situation in the months ahead. This comes after initial unemployment numbers in May continued their massive jumps. Based on these mostly flat data points, consumers haven't made up their mind on a recovery yet.
May 26th, 2020
An early week starts with a slew of economic indicators including some business activity surveys and real estate data releases. Stocks roared higher in the morning and throughout the day until the last two hours when some gains were lost. Overall, market technicals feel stronger after holding some key support lines this week. The COVID-19 crisis appears to be settling down, but uncertainties about reopening remain intact.
Two business activity-based reports were released today from the Chicago and Dallas Feds. The Chicago Fed National Activity Index, which is still on its April issue, revealed a massive drop from -4.97 to -16.74. This index reading blows past lows seen in previous recessions in 2009, 2001, and even before that. Seventy-nine indicators were negative in April with massive drops in production and income-related and employment-related indicators. The largest blows came from a -11.2% drop in industrial production which lead production indicators to a -5.63 contribution and a -20,537,000 drop in payrolls which lead employment indicators to a -9.06 contribution. Thirty-four April indicators have yet to be released so there could be more pain coming.
The Dallas Fed Manufacturing Survey gave a glimpse into May's business activity following deep losses in April. Production, capacity utilization, and new orders all saw a robust increase as those reporting decreasing data stabilized to reporting no change. None of those indicators saw a quarter or more of respondents reporting increasing data. Finished goods inventories remained flat likely a result of production and purchasing freezing simultaneously. Prices paid for raw materials jumped more than prices received, but this could be a regional phenomenon as gasoline prices typically lag crude oil prices. Employment data improved as well following the improvement in production. Expectations improved greatly as well. Production and capacity utilization both jumped over 40 pts to the high 20's. New orders also saw a sizable jump to 17.8, up 31.5 pts. So far it seems that optimism hasn't for the recovery has not been reversed as reopening plans are deployed.
An additional question probed business executives' current status in the deficiencies of the COVID-19 economy. One question asked how long would firms last if they were to continue to receive revenues at current levels. Over half (59.5%) confirmed they could last longer than a year with another 17.5% saying they could last more than 6 months. Both time periods are larger than how long most think effects will last. On the other side of the coin, only 9.0% of firms appear to be in immediate danger, only lasting 3 months or less at current revenue levels. The questions following addressed the use of PPP loans by responding firms. Just over 60% of firms said they had applied for a loan with 93.1% of those firms receiving a loan. The responses to both of these questions suggest major economic damage, at least in the Dallas Fed region, has been avoided as a result of the swift deployment of stimulus. Surveys from other more hard-hit regions could tell a different story.
Two measures of home prices in March were released by the S&P and FHFA. Both revealed modest gains that seemed to defy COVID-19 effects. The S&P CoreLogic Case-Shiller US National Home Price Index saw year-over-year growth increase from 4.2% to 4.4%. The 20-City Composite saw slightly faster acceleration of growth with year-over-year gains up to 3.9% from 3.5%. The FHFA also reported similar stable monthly growth with March house prices up just 0.1%. Growth in the first quarter of 2020 was 1.7%.
The surprise in real estate data come in new home sales which bucked expectations and grew 0.6% in April. Some forecasts saw a monthly decline of over -22%. The growth was strongest in lower-priced homes, specifically the $150,000 to $199,999 band. Growth was restricted to the Northeast, Midwest, and South regions. After a sharp increase in supply in the previous month, new home sales actually fell -1.6% in April. With the worst of the COVID-19 crisis behind, it looks like the real estate market may be safe from any further significant slowdowns. Of course, the uncertainty of a possible second means things can go south at any time.
Finally, Conference Board released its consumer conference reading for the month of May. After April, this month's confidence increased only 0.9 pts to 86.6. As seen in previous consumer confidence reports, current conditions decreased, though slightly, while future expectations saw a slight increase. Overall through the COVID-19 pandemic, the current conditions index fell almost 100 points. Employment sentiment was mostly flat as most respondents gravitated towards expecting no change in the employment situation in the months ahead. This comes after initial unemployment numbers in May continued their massive jumps. Based on these mostly flat data points, consumers haven't made up their mind on a recovery yet.
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