Chief Economist Scott Brown discusses the latest market data.
Real GDP fell at a 4.8% annual rate in the advance estimate for 1Q20, reflecting sharp declines in consumer spending (-7.6%) and business fixed investment (-8.6%). Personal spending fell 7.5% in March (-3.8% y/y), reflecting sharp declines in motor vehicles, gasoline, clothing, and restaurants (partly offset by increased sales at grocery stores). Jobless claims fell to 3.84 million in the week ending April 25, down in recent weeks but still extremely elevated. Prior to seasonal adjustment, 27.9 million people have filed claims in the past six weeks – that’s 17% of the labor force (or one in six workers). The ISM Manufacturing Index fell less than feared in April (41.5, vs. 49.1 in March), but largely because of virus-related supply chain disruptions, which lengthened supplier delivery times. New orders, production and employment fell sharply. The Conference Board’s Consumer Confidence Index fell to 86.9 in the initial estimate for April, vs. 118.8 in March and 132.6 in February. Within the report, the Present Situation Index fell 90 points, the largest decline on record.
Following the April 28-29 policy meeting, Federal Reserve officials left short-term interest rates unchanged and retained their guidance that rates will remain low until the economy is firmly back on track. Fed Chair Powell said that the central bank will use its full range of tools to support the economy.
Next week, the focus will be on Friday’s employment figures, which are expected to be horrible. However, classification problems are likely to be amplified by the sheer magnitude of job loss. In the household survey (unemployment rate, labor force participation), someone furloughed (not formally laid off, but with zero hours) should be counted as “unemployed on temporary layoff.” However, the BLS indicated that this was a problem in March, understating the unemployment rate by a full percentage point. In the establishment survey (payrolls, hours and wages), a furloughed worker will still be counted as a payroll job if paid for any time during the pay period that includes the 12th.
|May 4||—||Factory Orders (March)|
|Mary 5||—||Trade Balance (March)|
|—||ISM Non-Manufacturing Index (April)|
|May 6||—||ADP Payroll Estimate (April)|
|May 7||—||Challenge Job-Cuts (April)|
|—||Jobless Claims (week ending May 2)|
|—||NF Productivity (1Q20)|
|May 8||—||Employment Report (April)|
|May 12||—||Consumer Price Index (April)|
|May 15||—||Retail Sales (April)|
|—||Industrial Production (April)|
|—||UM Consumer Sentiment (mid-May)|
|May 25||—||Memorial Day Holiday (markets closed)|
|June 10||—||FOMC Policy Decision|
|July 29||—||FOMC Policy Decision|
All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc. and are subject to change. There is no assurance any of the forecasts mentioned will occur or that any trends mentioned will continue in the future. Investing involves risks including the possible loss of capital. Past performance is not a guarantee of future results. International investing is subject to additional risks such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks, which may be greater in emerging markets. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, and state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Municipal bonds may be subject to capital gains taxes if sold or redeemed at a profit. Taxable Equivalent Yield (TEY) assumes a 35% tax rate.
The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. An investment cannot be made directly in these indexes. The performance noted does not include fees or charges, which would reduce an investor’s returns. U.S. government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.
Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments. Gross Domestic Product (GDP) is the annual total market value of all final goods and services produced domestically by the U.S. The federal funds rate (“Fed Funds”) is the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. Material prepared by Raymond James for use by financial advisors. Data source: Bloomberg, as of close of business April 30, 2020.
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