Another nearly 3 million people filed for unemployment for the first time during the week ending May 9, with Connecticut (+299K), Georgia (+241K) and Florida (+222K) reporting the biggest increases. The amount was about 500,000 claims higher than anticipated.
When we factor in the number of new claims, the number of continuing claims (which increased by about 460K to 22.8 million) and the amount of people in the labor force, we estimate that the unemployment rate is around 19.4%.
The bottom line is that while initial jobless claims are slowing, they remain at unbelievably high levels, especially given that we were averaging 200K new weekly initial jobless claims prior to the pandemic.
Inflation Declines in April
As expected, inflation fell in April due to the lack of pricing pressure. April's Consumer Price Index (CPI), which measures consumer inflation, came in at -0.8% while dropping from 1.5% to 0.3% on an annual basis. A big part of the decline was due to oil prices, which have dropped significantly. The monthly drop was the largest decline since the Great Recession in 2008 and marked the second straight monthly decrease.
On the wholesale level, the Producer Price Index (PPI) was down 1.3%, which was worse than the expected 0.5% decrease. PPI also moved lower from 0.7% to -1.2% year over year, which was worse than expectations. Core PPI, which strips out food and energy prices, also decreased by 0.3%, which again was worse than expectations, while the annual rate dropped from 1.4% to 0.6%.
Retail Sales and Manufacturing Update
Retail sales tumbled over 16% in April, worse than the 12% drop predicted and coming in as the worst report on record. While online retail sales rose 8.4%, everything else fell precipitously.
Clothing stores were hit especially hard, showing a -78.8% plunge in sales, while sales at electronics and appliance stores (-60.6%), furniture and home furnishing stores (-58.7%) and sporting goods stores (-38%) were also impacted in a big way. Bars and restaurants also saw a -29.5% drop in sales, as did gasoline stations (-28.8%), with people on the roads less.
The control group, which takes out autos, gasoline and building materials, showed that retail sales fell by 15.3% overall, three times the estimate. We will see how these figures change in the coming months as states begin to reopen.
What to Look for This Week
Housing data will dominate the headlines throughout the week, as the NAHB Housing Market Index for May releases on Monday, followed by April's Housing Starts and Building Permits on Tuesday and Existing Home Sales on Thursday.
The Bond market will close early at 2:00 pm ET Friday, ahead of the Memorial Day weekend, while Stocks will be open for a full trading session.
Technical Picture
The Fed continues to purchase Mortgage Backed Securities in line with its goal of stabilizing the markets. MBS have been trading in the middle of a wide range between support at the 50-day Moving Average and overhead resistance at the 25-day Moving Average. While there may be some volatility within this range, it shouldn't be too extreme until either the ceiling or floor are tested. The 10-year is trading at 0.64% and we will be watching to see if it moves lower towards the all-time low of 0.31%.
Source: Josh Dougherty w/ Homebridge Financial Services