Economic Indicators and Developments Approaching August 2020

Tim’s Take: The Global Economy

On July 22, the S&P Index closed at 3,276 posting a year-to-date gain of 1.4% and an increase of nearly 25% since March 31, as well as being a high for the year. The DJIA closed at 27,006, a year-to-date gain of 14.7% and a 21% gain from March 31. The NASDAQ Composite closed at 10,076, posting a 19.3% year-to-date gain and increasing 37.8% since March 31.

According to Bankrate, the current average 30-year fixed mortgage rate is 3.15%, and the average 15- year fixed is 2.68%. On March 31, these rates were 3.84% and 3.33%, respectively.

According to the National Association of Realtors, existing home sales in the U.S. rebounded at a record pace in June. Single-family homes, townhomes, condominiums and co-ops jumped 20.7% from May to a seasonally adjusted annual rate of 4.72 million units last month. Sales overall, however, dipped year-over-year, down 11.3% from a year ago (5.32 million units in June 2019). The median existing-home price for all housing types in June was $295,300, up 3.5% from June 2019 ($285,400), as prices rose in every region. June’s national price increase marks 100 straight months of year-over-year gains. Total housing inventory at the end of June totaled 1.57 million units, up 1.3% from May, but still down 18.2% from one year ago (1.92 million units). Unsold inventory was at a four-month supply at the current sales pace, down from both 4.8 months in May and from the 4.3-month figure recorded in June 2019.

On July 22, the yield on 30-year Treasuries was 1.29%; 10-year Treasury bond yield was 0.6%; and the three-month Treasury yield was 0.13%. On March 31, these yields were 1.35%, 0.7% and 0.11%, respectively. The annual inflation rate for the U.S. is 0.6% for the 12 months ended June 2020 as compared to 2.3% for 2019 and 1.9% in 2018. The U.S. Bureau of Labor Statistics’ next inflation update is scheduled for August 20.

The June 2020 U.S. employment rate was 11.1%, decreasing from 13.3% in May and 14.7% in April. The March unemployment rate was 4.4% and averaged slightly over 3.5% in Q1 2020. Regarding household spending, the U.S. Department of Commerce’s Bureau of Economic Analysis cited an increase in May to 8.2%, compared to an adjusted decrease of 12.6% in April and a March decrease of 6.6%. These preceding improvements in consumer spending as cited in our June 15 update were attributable to government payments through the federal rescue programs and primarily due to the household stimulus payments of $1,200 and unemployment insurance payments. In April, consumers received approximately $20 trillion in income from all sources: wages, salaries and other sources. However, the amounts received that represented stimulus checks, unemployment payments and government transfers received were essentially converted by individual recipients to savings and not deployed into the economy and spent on goods, services and other items.

On July 8, the “Conference Board Economic Forecast for the U.S. Economy” commented that Q1 2020 Gross Domestic Product (“GDP”) was down 5% (annualized) compared to Q4 2019, as cited by the National Bureau of Economic Research, which also declared that the U.S. economy officially entered a recession in February. Given the timing of COVID-19 and the stay-at-home efforts seen throughout the country, however, the expectation cited was a much deeper contraction in Q2 2020, with the worst pain concentrated in April. The Conference Board also cited an updated forecast whereby U.S. GDP will contract by 7% for 2020. However, upside and downside risks for the economic recovery remain, based upon COVID-19 being brought under control, whereby unemployment could ease further and consumer confidence could rise, resulting in a stronger recovery that brings the economy back to pre-COVID-19 levels of output by the end of 2021. However, the Conference Board also cited that if a large second wave of COVID-19 cases arise in the autumn that results in widespread economic lockdowns, it could yield a weaker W-shaped recovery that would hurt Q4 growth and extend the economic crisis into 2021.                     

In late April and May 2020 the U.S. Congressional Budget Office (“CBO”) developed preliminary projections of key economic variables through the end of calendar year 2021, based on information about the economy that was available and included the effects of an economic boost from stimulus legislation recently enacted. In addition, the CBO developed a preliminary assessment of federal budget deficits and debt for fiscal years 2020 and 2021.

In the CBO’s July “An Update to the Economic Outlook: 2020 to 2030,” its projections for 2020 and 2021 are similar to those it published in May, except that economic growth in the second half of 2020 is now projected to be slower. The CBO’s economic outlook for 2020 to 2030 has deteriorated significantly since the agency last published its full baseline economic projections in January. For instance, the annual unemployment rate averages 6.1% over those 11 years in the current projections, whereas it averaged 4.2% in the January projections. Similarly, the annual level of real GDP in those years is now projected to be 3.4% lower on average than it was projected to be in January. Forthcoming supplemental materials will provide more detailed comparisons of the current projections with the agency’s previous projections and with those of other forecasters.