Job trouble? Wave of rehiring after economy reopened to fade in July after viral spiral

The engine of the U.S. economy may have gotten clogged again — no thanks to the recent acceleration in coronavirus cases. That’s bad news for Americans hoping to return to their old jobs.

Just how much damage has been done will become more evident this week, especially from the U.S. employment report for July due next Friday. The number of jobs regained last month is unlikely to match the huge increases in May and June that totaled a combined 7.5 million.

Wall Street

economists predict the U.S. added about 1.5 million jobs in July.

Even that estimate may be inflated though by seasonal changes in educational employment at the state and local level, Morgan Stanley contends. Private-sector jobs could increase by less than one million, the investment bank calculated.

See: MarketWatch Economic Calendar

Whatever the case, a much smaller increase in hiring or rehiring in July would bode ill for the U.S. recovery from the coronavirus pandemic. The government last week reported that gross domestic product sank a whopping 32.9% in the second quarter on an annualized basis, the biggest decline since World War Two.

Read: Economy suffers titanic 32.9% plunge in 2nd quarter, points to drawn-out recovery

Also:‘A massive welfare economy’ – federal aid prevents even steeper GDP collapse

“The big question hovering over next week’s employment report is whether the two-month surge in job gains stopped in July,” says David Donabedian, chief investment officer of CIBC Private Wealth Management. He thinks that’s exactly what happened.

It will be hard for the economy to make up a lot of lost ground in the third quarter unless hiring snaps back even faster.

See:MarketWatch Coronavirus Recovery Tracker

The U.S. lost a record 22 million jobs in March and April, according to Labor Department data. So far the economy has recovered less than one-third of those jobs.

The weekly tally of jobless claims, meanwhile, showed an even higher 30 million unemployed people were collecting benefits as of mid-July, representing about one in five Americans who said they were working before the pandemic, according to a Labor Department survey of households.

Robert Frick, corporate economist at Navy Federal Credit Union, said many people who expect to return to work are going to find they have no jobs or businesses to which they can return, a “grim reminder” of how much long-term damage the pandemic has caused.

“In the long run we are going to see a sobering slowdown in job growth,” he said.

The still-high level of unemployment, the viral spiral, and the uncertainty over whether Washington will provide more financial aid has understandably made Americans feel less confidence. On Friday Congressional lawmakers were still at odds on the next relief package with many benefits set to expire at the end of July.

A variety of measures that monitor consumer attitudes show a clear deterioration in July that’s likely to bleed over into August. That will make a recovery even harder.

Read:Consumer confidence wanes in July and points to rockier economic recovery

And:Consumer sentiment falls as coronavirus cases rise and federal aid set to expire

The news might not all be negative next week, however.

Manufacturers — auto makers in particular — have shown more resilience than the service side of the economy. The closely followed ISM manufacturing survey could show improvement for the third straight month.

The housing industry has also snapped back faster than expected amid a surge in home sales. Prospective buyers with secure jobs are taking advantage of record-low interest rates to buy new homes, a trend that may have been fueled by people fleeing the closed spaces of cities with a high number of coronavirus cases.

Even that potential bit of good news, however, has been overshadowed by the broader damage to the economy from the latest spike in coronavirus cases in many American states.

A full recovery can’t take root and blossom, economists say, until the disease is brought under control.

See: Pandemic will continue for some time, experts tell Congress as U.S. case tally nears 4.5 million

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Look what happened to home prices when the coronavirus sent stocks into a bear market

Residential real estate has done it again: It rose during the February-March bear market. I’m referring, of course, to the average price of a U.S. home during the stock bear market earlier this year, during which the S&P 500

fell 34%. Over the same period the benchmark Case-Shiller U.S. National Home Price Index rose 1.0%.

This index’s ability to hold its own during the bear markets is not a fluke. The index also rose in all but two of prior U.S. equity bear markets back to the mid-1950s, which is when monthly data begins for the Case-Shiller index. In one of those two exceptions, the index fell by just 0.4%.

The one other time when residential real estate didn’t hold up: the Great Financial Crisis. From its high prior to the crisis to its subsequent low, the Case-Shiller index lost 27%. Given that so many investors own their homes with substantial leverage, it’s little surprise that so many lost everything. The resultant trauma keeps many people from appreciating what residential real estate can do for their portfolios.

The data don’t lie. As you can see from the accompanying chart, the Great Financial Crisis was the only period over the past seven decades in which the Case-Shiller index experienced a trailing 12-month return lower than 2%.

The upshot, Shiller told me when I spoke to him in the wake of the Great Financial Crisis, is that real estate’s loss during that bear market for stocks is better viewed as the exception rather than the rule. It was caused in no small part caused by idiosyncratic developments that are unlikely to be repeated in the future, he said, such as “subprime mortgages, securitized in tranches, and dubious innovations, [as well as] liar loans.”

Read: Home prices could fall in major cities as Americans sour on urban living, says Nobel Prize-winning economist Robert Shiller

More: If you’re skipping your mortgage payments, watch out for this costly mistake

Homes, sweet homes

The residential real estate asset class also carries several other attractive features:

•       It is uncorrelated with equities. The correlation coefficient between the monthly returns of equities and residential real estate’s monthly returns since 1953 is an extremely low 0.01 (a 1.0 reading would mean that the two are totally correlated and a 0.0 reading would mean that there are totally uncorrelated).

•        Americans’ desire to move out of the city to the suburbs and more rural areas. The COVID-19 pandemic has made that desire even stronger. However, as Shiller noted recently, this move could simultaneously cause home prices in the cities to decline.

•        Unlike bonds, residential real estate is a good long-term hedge against inflation. This is an important feature since bonds historically have been the go-to asset class for hedging against equity bear markets. But with interest rates today so low, bonds are more vulnerable than at almost any other time in U.S. history to a big uptick in inflation. That uptick should benefit residential real estate.

Favorable trends in residential real estate most definitely do not extend to commercial real estate.

These favorable trends in residential real estate most definitely do not extend to commercial real estate. The economic downturn caused by the pandemic, which in turn has accelerated work-from-home trends, has been a disaster for that sector. So don’t let your bullishness for residential real estate seduce you into investing in commercial real estate.

It’s one thing to recognize that residential real estate can be a good portfolio diversifier, and quite another to determine how to go about getting exposure to the asset class. That’s because the price appreciation of an individual home will undoubtedly deviate significantly from that of the national average. It’s entirely possible that, during a future period in which the Case-Shiller index rises, your particular house will fall in value, for example.

The only way I know of to overcome this risk, and instead to invest directly in residential real estate as an asset class, is by purchasing one of the futures contracts that are benchmarked to the Case-Shiller index, which trade on the CME. Note carefully that the market for these contracts is extremely thin. Because of this, their prices can exhibit a lot of short-term volatility having more to do with the presence or absence of bids or offers than with the performance of the Case-Shiller Index itself.

For example, the August 2020 contract on the Case-Shiller index fell by 10% during April and then in May recovered all of that loss and then some to close the month higher than where it stood two months prior. That volatility had nothing to do with the Case-Shiller index itself.

So do your homework before purchasing one of these futures contracts. One place to start would be the blog penned by John Dolan, an independent market-maker for the CME Case Shiller Home Price Index futures. Be sure also to consult with a qualified investment professional. You want to make sure you don’t purchase one of these futures when they are temporarily bid up by an imbalance of buy orders.

What about real estate mutual funds and ETFs? Because they invest in particular markets, regions or real estate sectors, none of them is a pure play on residential real estate as a whole. The same goes for Real Estate Investment Trusts (REITs). So while they may provide some exposure to the residential real estate asset class, they also carry considerable so-called tracking error risk — the risk of earning returns significantly lower than the asset class itself.

The bottom line: Don’t overlook residential real estate as an important portfolio diversifier. While it won’t be easy to become exposed to the asset class, it could well be worth the effort.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at

More:Risks are mounting for U.S. stocks. Here’s where BlackRock says investors should look instead

Plus:  Warren Buffett is ‘willing to look like an idiot in the short term,’ according to ‘Wall Street’s biggest influencer’

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Buy Whirlpool To Profit From A Rebound In Housing (NYSE:WHR)

Due to public health policies, we saw a sharp downturn across most of the economy in late March and April. However, with these policies having reversed somewhat, we can now see which sectors are rebounding more quickly than others. Investors want to position themselves in companies that are more likely to enjoy a “V” shaped recovery in demand than those suffering in a “U” shaped slump. Given the strong rebound in housing demand, Whirlpool (WHR) is a company that should see solid results and is attractively valued.

Whirlpool is, of course, an appliance manufacturer, best known for its washers and dryers, though it also makes dishwashers, ovens, refrigerators, etc. Consumers are most likely to purchase appliances when purchasing a home, making WHR’s business correlated to some degree with housing demand, recognizing that there is also replacement demand as appliances age or consumers refurbish their home. Currently, it appears consumers are looking to take advantage of low rates and buy a home. In fact, applications for a mortgage to purchase a home are now higher than they were pre-COVID-19.

Similarly, purchases of new homes jumped by 16.6% in May. At a 676,000 pace, activity is only 1% lower than the 683,000 sold in 2019, even though much of the country still had some COVID-19-related restrictions in place. One potential driver of this demand may be consumers looking to exit dense, urban environments in favor of the suburbs. Indeed, reported that the discrepancy in demand between suburban and urban real estate was the second highest since 2016 last month. As suburban homes are more likely to have a full suite of appliance, in particular a washer/dryer, versus multifamily urban settings which will often have shared washers/dryers, this trend would be another tailwind for Whirlpool.

Additionally, with consumers spending so much more time at home, it looks like they are shifting their budgets to spend more on their home. The Census Department reported that consumers spent 16% more on building materials than last year. Now, sales at appliance and electronics stores were down 30%, though that is a substantial bounce back from -53% in April. This may also overstate the decline in demand for appliances as this series measures revenue at stores, and consumers may have increased online buying.

As you can see from the chart below, demand for appliances and building materials are pretty correlated, and a deviation like we’ve just seen is unprecedented. Ultimately, I believe building materials demand should lead to more appliance demand. For instance, when remodeling a kitchen, one does work on the cabinetry, walls, etc., before installing the appliances. As a consequence, I would expect appliance sales to continue their rebound.

This backdrop takes us to Whirlpool. In 2019, the company had $16 of operating EPS and generated just over $900 million in free cash flow. Now with revenue down 9% in Q1 year on year given the beginning of lockdowns in Asia and Europe, which continued into Q2 in Europe and the US, first half results are likely to be down double digits versus 2019. However, stock prices should compensate you for future earnings, not past ones. With demand for housing rebounding so sharply, Whirlpool should enjoy a significant bounce in the second half of 2020 through 2021. In addition, the company has launched a $500 million cost savings effort, which should help protect cash flow until demand rebounds.

Over the next 12 months, I believe that Whirlpool results can be within 5% of 2019 levels. Indeed, this may prove to be conservative if the urban to suburban trend continues, as Whirlpool will see greater penetration per home sale. That should position the company to earn at least $14 with at least $800 million of free cash flow. At $123, investors are buying into the housing recovery at only 9x earnings with a 10.5% free cash flow yield. At the same time, investors will collect a nearly 4% dividend yield, which given strong free cash flow capacity, should prove to be stable.

Whirlpool’s stock is discounting a slow and prolonged recovery in demand; however, based on housing and building material sales, Whirlpool is positioned to enjoy a sharper rebound. I would be a buyer at these levels and believe shares can return to $160, which is still just 11.5x my expected earnings over the next 12 months.

Disclosure: I am/we are long WHR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Weekly High Frequency Indicators: Housing Continues Improvement, While Employment Worsens


I look at the high frequency weekly indicators because while they can be very noisy, they provide a good nowcast of the economy, and will telegraph the maintenance or change in the economy well before monthly or quarterly data is available. They are also an excellent way to “mark your beliefs to market.” In general, I go in order of long leading indicators, then short leading indicators, then coincident indicators.

A Note on Methodology

Data is presented in a “just the facts, ma’am” format with a minimum of commentary so that bias is minimized.

Where relevant, I include 12-month highs and lows in the data in parentheses to the right. All data taken from St. Louis FRED unless otherwise linked.

A few items (e.g., Financial Conditions indexes, regional Fed indexes, stock prices, the yield curve) have their own metrics based on long-term studies of their behavior.

Where data is seasonally adjusted, generally it is scored positively if it is within the top 1/3 of that range, negative in the bottom 1/3, and neutral in between. Where it is not seasonally adjusted, and there are seasonal issues, waiting for the YoY change to change sign will lag the turning point. Thus I make use of a convention: data is scored neutral if it is less than 1/2 as positive/negative as at its 12-month extreme.

With long leading indicators, which by definition turn at least 12 months before a turning point in the economy as a whole, there is an additional rule: data is automatically negative if, during an expansion, it has not made a new peak in the past year, with the sole exception that it is scored neutral if it is moving in the right direction and is close to making a new high.

For all series where a graph is available, I have provided a link to where the relevant graph can be found.

Recap of monthly reports

April data included housing permits, starts, and existing home sales, all of which fell sharply. Partly as a result, the Index of Leading Indicators also fell over 4% (which was much less worse than last month’s slide of nearly -8%).

Note: For many indicators, I have added the week of the worst reading since the coronavirus crisis began in parentheses following this week’s number. The first indication of bottoming will be when these comparisons get “less worse,” and a bottom will probably be in when the comparison improves by about 1/2).

Long leading indicators

Interest rates and credit spreads


  • BAA corporate bond index 3.88%, down -0.16% w/w (1-yr range: 3.29-5.18)
  • 10-year Treasury bonds 0.66%, up +0.02% w/w (0.54-2.79)
  • Credit spread 3.22%, down -0.18% w/w (1.96-4.31)

(Graph at FRED Graph | FRED | St. Louis Fed)

Yield curve

  • 10 year minus 2 year: +0.49%, down -0.01% w/w (-0.04-0.55)
  • 10 year minus 3 month: +0.53%, up +0.01% w/w (-0.52-0.70)
  • 2 year minus Fed funds: +0.07%, down -0.03% w/w

(Graph at FRED Graph | FRED | St. Louis Fed)

30-Year conventional mortgage rate (from Mortgage News Daily) (graph at link)

  • 3.04%, down -.05% w/w (3.03-4.63) (NEW SERIES LOW INTROWEEK)

BAA Corporate bonds and Treasury bonds turned positive several months ago. That corporate bonds fell to another new expansion low late last year would ordinarily be extremely bullish into Q1 2021, but the more recent spike to nearly five-year highs would ordinarily mean this is a negative. In the past two months, bonds have bounced back into positive territory near their lows.

The spread between corporate bonds and Treasuries recently turned very negative, but has also bounced back significantly. Two of the three measures of the yield curve remain solidly positive, while the Fed funds vs. two-year spread turned neutral. Mortgage rates at new all-time lows are extremely positive.


Mortgage applications (from the Mortgage Bankers Association)

  • Purchase apps +6% w/w to 259 (184-315) (SA)
  • Purchase apps 4 wk avg. +18 to 233 (SA)
  • Purchase apps YoY -1.5% (NSA) (Worst: -35% on 4/18)
  • Purchase apps YoY 4 wk avg. -13% (NSA)
  • Refi apps -6% w/w (SA)

*(SA) = seasonally adjusted, (NSA) = not seasonally adjusted

(Graph here)

Real Estate Loans (from the FRB)

  • Up 0.1% w/w
  • Up +4.2% YoY (2.8-5.2)

(Graph at Real Estate Loans, All Commercial Banks | FRED | St. Louis Fed)

With lower rates since early 2019, purchase mortgage applications were solidly positive. When the crisis started, they reverted back to negative. In the past several weeks, however, they have rebounded strongly and are now roughly 50% of the way back towards their all time highs. Lower rates also recently led to a decadal high in refi.

With the exception of several weeks in 2019, real estate loans generally stayed positive for the past several years.

Money supply


  • +1.4% w/w
  • +8.0% m/m
  • +34.7% YoY Real M1 (-0.1 to 34.7) (new one-year high)


  • +1.3% w/w
  • +6.4% m/m
  • +22.7% YoY Real M2 (2.0-22.7) (new one year high)

(Graph at FRED Graph | FRED | St. Louis Fed)

In 2018 and early in 2019, real M1 turned neutral and very briefly negative. Real M2 growth fell below 2.5% almost all during 2018 and early 2019, and so was rated negative. Last year, both continued to improve, and for the past few months, both have turned and remained positive. Fed actions to combat the economic crash have only amplified that.

Corporate profits (estimated and actual S&P 500 earnings from I/B/E/S via

  • Q1 2020 95% actual + 5% estimated, down -0.22 to 33.38, down -20.1% q/q, down -22.2% from Q4 2018 peak

(Graph: P. 24 at here)

FactSet estimates earnings, which are replaced by actual earnings as they are reported, and are updated weekly. Based on the preliminary results, I expanded the “neutral” band to +/-3% as well as averaging the previous two quarters together, until at least 100 companies have actually reported.

Q1 earnings have been dismal as expected. Needless to say, this metric is negative.

Credit conditions (from the Chicago Fed) (graph at link)

  • Financial Conditions Index down -0.06 (looser) to -0.46
  • Adjusted Index (removing background economic conditions) up +0.01 (from tight to loose) to +0.25
  • Leverage subindex down -0.02 (less tight) to +0.52

The Chicago Fed’s Adjusted Index’s real break-even point is roughly -0.25. In the leverage index, a negative number is good, a positive poor. The historical breakeven point has been -0.5 for the unadjusted Index. In early April, all turned negative. In the past month, there has been a rebound.

Short leading indicators

Trade weighted US$

Both measures of the US$ were negative early in 2019. In late summer, both improved to neutral on a YoY basis. The measure against major currencies took a major spill recently. Both measures had recently been neutral. The broad measure has remained negative, while against major currencies it remains neutral.

Commodity prices

Bloomberg Commodity Index

  • Up +1.08 to 62.74 (58.87-83.08)
  • Down -20.5% YoY (Worst: -26.0% on April 25)

(Graph here)

Bloomberg Industrial metals ETF (from Bloomberg) (graph at link)

  • 96.48, up +2.34 w/w (88.46-124.03)
  • Down -13.4% YoY (Worst: -23.6% on April 11)

Both industrial metals and the broader commodities indexes declined to very negative into 2019 and remain extremely negative, although there has been a bit of a bounce in the past month.

Stock prices S&P 500 (from CNBC) (graph at link)

In 2019 stocks made repeated new three-month and all-time highs, but none since February 19, more than three months ago, which means this drops out of the comparison. Since they did make a new three-month low two months ago in March, this metric drops to negative. If there is neither a new three-month high or low in the next 30 days, it will return to neutral.

Regional Fed New Orders Indexes

(*indicates report this week) (no reports this week)

The regional average is more volatile than the ISM manufacturing index, but usually correctly forecasts its month-over-month direction. All during 2019 it had been waxing and waning between positive and flat until it turned negative in January. In February there was a strong positive spike, but in March this fell apart and the average is now even more negative than during the Great Recession. It has rebounded significantly this month.

Employment metrics

Initial jobless claims

  • 2,438,000, down -543,000 w/w (Worst: 6.867 M on April 4)
  • 4-week average 3,042,000, down -574,500 w/w (Worst: 5.786 M on April 25)

(Graph at FRED Graph | FRED | St. Louis Fed)

Initial claims made new 49-year lows in April 2019. Needless to say, that has all gone out the window. The best that can be said is that the pace of new claims has slowed to less than half its record from six weeks ago.

Temporary staffing index (from the American Staffing Association) (graph at link)

  • Unchanged at 60 w/w
  • Down -36.2% YoY (new Worst)

This index turned negative in February 2019, worsened in the second half of the year, and has plummeted in the past month.

Tax Withholding (from the Dept. of the Treasury)

  • $164.8 B for the last 20 reporting days vs. $185.9 B one year ago, down -$21.1 B or -11.4% (Worst: -13.2% on May 8)

YoY comparisons were almost uniformly positive since February 2019, until five weeks ago. Three weeks ago they turned firmly negative.

Oil prices and usage (from the E.I.A.)

  • Oil up +$3.75 to $33.47 w/w, down -43.0% YoY
  • Gas prices up +$.03 to $1.88 w/w, down -$0.97 YoY (Worst: -$1.12 on May 1)
  • Usage 4-week average down -29.1% YoY (Worst: -43.7% on May 1)

(Graphs at This Week In Petroleum Gasoline Section)

At the beginning of this year, they went higher YoY, but since have abruptly turned lower; thus they have turned positive. Gas prices have are near 20-year lows. Usage was positive YoY during most of 2019 and had oscillated between negative and positive for the last several months. It turned decisively negative since the beginning of April. It has rebounded significantly off its worst point three weeks ago.

Bank lending rates

  • 0.240 TED spread down -0.04 w/w (0.21-1.51) (graph at link)
  • 0.170 LIBOR down -0.01 w/w (0.17-2.50) (graph at link) (new one year low)

Both TED and LIBOR rose in 2016 to the point where both were usually negatives, with lots of fluctuation. Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions. After being whipsawed between being positive or negative in 2018, since early 2019 the TED spread remained positive – until four weeks ago, when it turned negative again. But both TED and LIBOR have declined far enough to turn positive.

Business formations

Prof. Geoffrey Moore included net formations minus bankruptcies as measured by Dun & Bradstreet among his 11 short leading indicators. This statistic, which isn’t exactly the same and is only 15 years old, is a similar measure. There is marked seasonality and considerable variance week to week, but a five-week average cuts down on most of that noise while retaining at least a short leading signal that appears to turn 1-3 months before the cycle.

This turned negative YoY nine weeks ago as soon as coronavirus turned into a real issue. There has been significant improvement in the past three weeks.

Coincident indicators

Note: The St. Louis FRED has initiated a Weekly Economic Index consisting of many of the same components as I track below, plus the weekly Rasmussen consumer index, electricity usage, plus initial and continued jobless claims and the Staffing Index I track above. You can find it here.

Restaurant reservations YoY (from Open Table)

I will update this for the duration of the coronavirus outbreak. The last day that restaurant reservations were positive YoY was February 24. The sharp break downward began on March 9. Despite the reopening of restaurants in some states, consumer enthusiasm has been noticeably lacking.

Consumer spending

  • Johnson Redbook down -9.5% YoY (new Worst)
  • Retail Economist +1.3% w/w, -16.6% YoY (Worst: 27.5% on April 25)

In April the bottom fell out below the Retail Economist reading. Redbook finally turned negative four weeks ago.


Railroads (from the AAR)

  • Carloads down -30.2% YoY (new Worst)
  • Intermodal units down -14.0% YoY (Worst: -22.4% on May 1)
  • Total loads down -22.0% YoY (Worst: -39.4% on May 8)

(Graph at Railfax Report – North American Rail Freight Traffic Carloading Report)

Shipping transport

Since January 2019 rail has been almost uniformly negative and worsened beginning late in the year. YoY comparisons have continued to worsen in April.

Harpex made new three-year highs in mid-2019 and remained near those highs until the beginning of this year. It has declined about 165 points. BDI traced a similar trajectory, making new three-year highs into September 2019, then declining to new three-year lows at the beginning of February. It remains above those lows, but is still a negative. With the recovery in China, these measures may begin to improve.

I am wary of reading too much into price indexes like this, since they are heavily influenced by supply (as in, a huge overbuilding of ships in the last decade) as well as demand.

Steel production (from the American Iron and Steel Institute)

  • Down -1.9% w/w
  • Down -37.2% YoY (Worst: -39.4% on May 8)

By autumn of 2019, the YoY comparisons were almost exclusively negative. It was generally positive since the beginning of this year, but in March it turned negative again. The bottom fell out in April.

Summary And Conclusion

There were only two changes among any of the three time frames this week: mortgage applications rose to neutral, and stock prices, as the last high in February dropped out of the comparisons, turned negative. Several strong rebounds continued: money supply, purchase mortgage applications, mortgage rates (which made new all-time lows), business formations, and stock prices. On the other hand, two of the series did make “new worsts” since the start of the Coronavirus Recession: staffing and rail carloads.

Among the coincident indicators, everything except for the TED spread and LIBOR – consumer spending, tax withholding, the Baltic Dry Index, rail, steel, restaurant reservations, Harpex and the BDI – remains negative.

Among the short leading indicators, gas and oil prices are positives. The broad US$ and the spread between corporate and Treasury bonds are neutral. Temporary staffing, the US$ against major currencies, initial claims, the regional Fed new orders indexes, the Chicago Financial Conditions Index, gas usage, business formations, and both industrial and overall commodities are negative, joined this week by stock prices.

Among the long leading indicators, corporate bonds, Treasuries, mortgage rates, two out of three measures of the yield curve, real M1 and real M2, real estate loans, and mortgage refinancing as positives are all positives. The two-year Treasury minus Fed funds yield spread remains neutral, joined by purchase mortgage applications. Corporate profits are negative, as are the Adjusted Chicago Financial Conditions Index and its Leverage subindex.

The fundamental story remains the same. Both the nowcast and the short-term forecast remain awful. The long-term forecast is weakly positive, once enough people correctly believe that it is safe to participate in the economy.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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April Housing Permits And Starts Set A Baseline For A Housing Recovery


Housing, as I have written many times, is a long leading indicator, giving a glimpse of the direction of the economy one year and more out. As such, the April report on housing permits and starts, released yesterday morning, sets the baseline both for the impact of the coronavirus recession and for a potential recovery.

To the numbers

Both housing permits and starts peaked in January. Starts have historically tended to be about twice as volatile as permits and that has remained true for March and April, as the former is down the total of a little over 30% (red in the graph below), while the latter is down 45% (blue):

Historically, single-family permits have been the least volatile of either series and just as leading. These peaked in February and are down 32.7% through April:

The first question going forward is, should we expect an even further collapse or is this close to or at the bottom?

Lower mortgage rates stimulate demand by making housing more affordable for potential buyers. The below graph shows this by comparing mortgage rates (red) for the past 60 years with a measure of affordability (blue), namely the FHFA monthly house price index x those mortgage rates. This does not exactly show, but approximates, the monthly payment for a typical home buyer:

This is back down to 2017 levels as of March.

Since I have many times pointed out that mortgage rates lead permits and starts typically by 3 to 6 months, the below graph, which updates mortgage rates through one week ago (red, right scale, weekly in the graph below), during which week they made a daily all-time low of 3.09%, indicates that average monthly payments will probably decline further for buyers who bought in April:

As we have seen in the first two weeks of May, mortgage applications rose sharply, reclaiming nearly half of their decline from their peak just a few months ago (courtesy

So, lower mortgage rates are already beginning to have an impact on the market. While perhaps 20% of the labor force has been laid off since March, there are enough of the remaining 80% who feel secure in their employment that these lower rates have enticed them to grab (relative) bargains.


Obviously, the continued course of the pandemic will have a determinative effect on these numbers, but what mortgage rates and the April report on permits and starts suggest is that (1) barring a renewed major wave of infections (which is possible!), we are probably at least close to the bottom of this major leading component of the economy and (2) when the pandemic is finally brought under control, at least if it is this year sometime, housing will continue to a significant positive bounce at the outset of the recovery.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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