HIGHLIGHTS OF THE WEEK
- Stock markets were in an optimistic mood heading into the Memorial Day weekend, although the economic data continues to be atrocious. Jobless claims data suggest that more job losses are coming in May.
- More concrete good news came from Germany and France, who announced joint support for a proposal to create a coordinated European fiscal response to the coronavirus pandemic.
Markets Optimistic Ahead of Memorial Day
Stock markets were in an optimistic mood heading into the Memorial Day weekend. However, it is likely to be a much more subdued celebration of the unofficial start of summer, with restrictions on gatherings, and millions of Americans newly unemployed. Markets may have taken their cue from global purchasing manager indices for May, which showed that contractions were less severe than in April. But, it seems a stretch to call that good news when PMIs still point to deep contractions in manufacturing and services.
More concrete good news came from German Chancellor Angela Merkel and French President Emmanuel Macro, who announced joint support for a proposal to create a coordinated European fiscal response to the coronavirus pandemic. This 500 billion Euro European Recovery Fund to be distributed as grants and funded by European Commission borrowing. This agreement between the EU’s two largest countries is noteworthy as it takes a small step towards a fiscal union – something that has been missing since the creation of the common currency in 1999 – and a step Germany has up until now been unwilling to take.
Stateside, the latest jobless claims data didn’t provide much cause for optimism. 2.2 million people applied for regular state benefits in the week ended May 16th (on a non-seasonally adjusted basis). However, an increasing number of states have started to report the number of people applying for the Pandemic Unemployed Assistance (PUA) separately, and these claims were also up 2.2 million on the week. PUA was created as part of the CARES Act in late March, and expands eligibility to many workers who don’t typically qualify for regular state benefits.
It took time for states to update their systems to accept and report these claims, so we are likely seeing a backlog being reported now. Including all special program recipients, continuing claims totaled 27 million as of May 2 and have risen by 25 million since early March (Chart 1). Adding rising initial claims in the weeks since, suggests employment will fall further in May.
Meanwhile, more pandemic-stricken April data rolled in this week – this time from the housing market. Housing starts fell 30.2%, and are down 43% versus February. Even though construction was classified as an essential business in most states, home-builder confidence has plummeted. Builders were clearly reluctant to break ground or apply for new projects with building permits down 25% since February.
Stay-at-home orders also left their mark on the resale market, with a 17.8% drop in existing home sales in April. Unlike other segments of the economy where the declines in activity are records, the drops in the housing market are not quite as bad as what was experienced in the housing market crash (Chart 2). Housing is getting some offsetting support from mortgage rates that fell to all-time lows in April, and have already boosted mortgage applications for purchases, and helped support refinancing activity.
Leslie Preston, Senior Economist | 416-983-7053
This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.