Market Conditions

Last week’s economic news included readings on inflation, retail sales, and a speech by Federal Reserve Chair Jerome Powell. The University of Michigan released a preliminary reading of its Consumer Sentiment Survey; weekly readings on mortgage rates and initial jobless claims were also released.

April Inflation and Retail Sales in Negative Territory

Consumer prices fell in April to a negative reading of -0.80 percent and matched expectations. The Core Consumer Price Index, which excludes volatile food and energy sectors, fell to -0.40 percent from -0.10 percent in March. Analysts expected a reading of -0.20 percent. Consumer Price Indices are used for determining inflation rates.

Retail sales also posted negative readings for April. Overall, retail sales fell by -16.40 percent as compared to the March reading of -8.30 percent and April’s expected reading of -12.50 percent. Retail sales excluding autos fell by 17.20 percent; analysts expected a reading of -0.90 percent based on the March reading of -0.40 percent. Retail readings may improve in May as retail establishments and malls start to open.

Fed Chair Expects Slow Economic Recovery

Jerome Powell, Chairman of the Federal Reserve advised business contacts that the economic recovery may be slower than originally expected.  In remarks given at the Peterson Institute for International Economics, Mr. Powell said, “The path ahead is both highly uncertain and subject to significant downside risks.” Mr. Powell cautioned that “the passage of time can turn liquidity problems into solvency problem” and suggested that additional government assistance to households and businesses may be worth it to prevent more damage to the economy.

Mortgage Rates Mixed; New Jobless Claims Fall

Freddie Mac reported little change in average mortgage rates last week. Rates for 30-year fixed-fixed rate mortgages averaged two basis points higher at 3.28 percent. Rates for 15-year fixed-rate mortgages dropped by one basis point to 2.72 percent. Rates for 5/1 adjustable rate mortgages averaged one basis point higher at 3.18 percent. Discount points averaged 0.70 percent for fixed-rate mortgages and 0.30 percent for 5/1 adjustable rate mortgages.

New jobless claims were lower than in the prior week but remained far above traditional readings. 2.98 million claims were filed as compared to the prior week’s reading of 3.18 million initial claims filed. Analysts expected a reading of 2.73 million new claims filed. 

The University of Michigan released its preliminary Consumer Sentiment Index readings for May. The latest index reading was 73.70  as compared to an expected reading of 69.80 and last month’s reading of 71.80. May’s reading was in line with Chair Powell’s suggestion that consumers are looking ahead to returning to work and shopping as the economy gradually reopens.

What’s Ahead

This week’s economic reporting includes readings from the National Association of Home Builders on housing market conditions along with reports on housing starts and building permits issued. Data on existing home sales and weekly readings on mortgage rates and new jobless claims will also be released.

Last week’s economic releases included readings on public and private sector employment, the national unemployment rate.

Economic Destruction Continues as Coronavirus Spreads

ADP reported 20.2 million private-sector jobs lost in April as compared to 149,000 jobs lost in March. The government’s Non-Farm Payrolls report showed -20.5 million public and private-sector jobs lost in April as compared to -870,000 jobs lost in March. Both of these jobs reports typically show job growth, but they now report jobs lost due to the coronavirus pandemic and efforts to control it.

Likewise, the national unemployment rate grew in April to 14.70 percent as compared to the normal reading of 4.40 percent in March.

Mortgage Rates Mixed as New Jobless Claims Fall

Freddie Mac reported higher average mortgage rates for 30-year fixed-rate mortgages, which were three basis points higher at 3.26 percent. The average rate for 15-year fixed-rate mortgages fell by four basis points to 2.73 percent. Rates for 5/1 adjustable rate mortgages rose by three basis points to 3.17 percent. Discount points averaged 0.70 percent for fixed-rate mortgages and 0.30 percent for 5/1 adjustable rate mortgages. 

First-time jobless claims fell to 3.17 million claims, which exceeded expectations of 3.10 million new claims filed. While new jobless claims were lower than the prior week’s reading of 3.85 million initial unemployment claims, the millions of claims filed were far above normal readings in the hundred-thousands. While jobless claims remain high, they are lower than the seasonally-adjusted peak of 6.90 million initial claims filed in March.

Analysts said that unemployment figures would increase as small business claims increase.

Credit Card Use Falls In March

Consumers stopped using credit cards in March as the coronavirus took hold and the economic shut-down limited shopping, travel, and dining out. Credit card companies tightened lending standards and reduced credit lines as unemployment rates rose. Credit card use fell by nearly 31 percent to – $28.20 billion in March; installment loans including education and vehicle loans rose by 6.20 percent to $16.1 billion.

Auto dealers offering attractive incentives including low to no interest rates encouraged consumers to purchase vehicles. Home loans were not counted in the reading for installment loans.

What’s Ahead

This week’s scheduled economic releases include readings on inflation, retail sales, and consumer sentiment. Weekly readings on mortgage rates and new jobless claims will also be released.