Initial Jobless Claims Stuck at 1.3 Million… Initial jobless claims eased by just a few thousand people, as another 1.3 million filed for jobless benefits for the first time.
What it means— There are several moving parts to unemployment benefits now that the government operates the Pandemic Unemployment Assistance (PUA) program in parallel with state programs. The total number of people claiming initial benefits in both programs dipped slightly last week, while those receiving any sort of benefits through June 27 fell from 32.436 million to 32.003 million. That’s the right direction, but to put it in perspective, only 1.632 million people claimed such benefits at this time last year.
But don’t worry… we’re about to pony up for more benefits. With coronavirus infections on the rise and the $600 weekly unemployment federal bonus benefit set to expire in two short weeks, we can expect Congress to pass some sort of bill that extends these benefits in some way and probably pays benefits for longer than 39 weeks. Recently, Fed Chairman Powell and former Chair Yellen have testified in Congress for more legislative action.
The Federal Reserve and other central banks have reduced bond purchases in May and June. Various regional Federal Reserve Presidents made speeches last week suggesting the impact of the Fed’s market intervention is waning and risk of a sharp decline is rising.
June Federal Deficit Totaled $864 Billion, Almost as Much as All of Fiscal 2019… Through the 12 months that ended in June, the deficit rose to $3 trillion, or 14% of GDP, far outstripping the 12-month deficit in February 2010, which reached 10.1% of GDP after the Great Financial Crisis.
What it means— Do you remember a time when deficits actually mattered to the government? We don’t. Deficits were smaller in the past, and people argued about them. Our elected officials spent the money anyway. So far, we haven’t paid much of a price, but long-term financial repression has begun. New research clarifies the negative impact of increasing government debt.
The Fed’s much-vaunted political independence is a charade. To keep government deficits from devouring the budget, the central bank will keep interest rates in the cellar for years, if not decades, which will rob savers of income and force investors, from individuals to pension funds, to take on more risk to meet their goals.
Consumer Prices Up 0.6% in June, Up 0.6% Over Last Year… After falling for months, consumer prices finally rebounded last month but remain subdued.
What it means— Excluding food and energy, prices rose just 0.2% and were up 1.2% over last year. Energy is the headline story: gasoline prices bounced 12.3% last month but are still down 23.4% for the year. But the bigger story is shelter, which makes up more than one third of the inflation measure. Driven by falling rents in large cities, shelter prices increased just 0.1% and are up 2.4% over last year. If the present trend continues, the CPI will remain low, which will give the Federal Reserve cover to keep interest rates in the cellar.
On another note, new car prices were flat last month and are down just 0.2% for the year, while used car prices fell 1.2% in June and are down 2.8% over last year. It might sound like we’re close to normal in the auto market, but the key is supply. With production shut down this spring, the auto industry still expects to sell several million fewer cars in 2020. Auto production remains 25% below where it was 12 months ago. The used car market hasn’t bounced back to previous sales levels, either.
With less supply, prices have been able to hold on. This could change in the months ahead as more inventory, both new and old from resumed production and ending leases, hits the market.
Retail Sales Up 7.5% in June, Up 1.1% Over June 2019…Excluding vehicles, retail sales were up 7.3%.
What it means— You can hear Janet Jackson now as she sings, “What have you done for me lately?” Retail sales popped in June after soaring 18.2% in May, but June was more than two weeks and 900,000 coronavirus infections ago. As cities and states reinstitute retail restrictions, travel bans, mask wearing and crowd limits, July’s numbers should drop. The gains in June were across the board, with auto sales up 8.2%, home furnishings up 32.5%, and clothing stores up 105%. That last number catches your eye, but clothing-store sales are still off 23.2% from last year. Online sales dipped 2.4% in June but remain 23.5% higher than this time last year.
June Housing Starts Increased 17% over May, But Remain 4% Lower Than Last Year… Permits rose just 2.1% from May, falling short of expectations, and are 2.5% lower than in June 2019.
What it means— Even though permits for single-family homes rose 12%, permits for multifamily homes fell 14%. It looks like apartment builders are putting on the brakes in large cities as residents move to the suburbs. With many people finding they can work from home effectively, some are now questioning why they live in densely packed cities where costs, crime rates, and the risk of infection are high.
This explains why builders are so confident. Home buyers are searching for any inventory they can find. Also, the Fed gave the housing market a gift as well by driving 30-year mortgage rates under 3%, the lowest level in history.
But, just as with retail sales, the question is, can it last? In the months ahead it’s likely that people will talk about unemployment as “stubbornly high,” and many businesses will fail as credit dries up. The effects will ripple through the economy and will even reach the housing market.
Potential sellers are reluctant to allow open houses for fear of contamination and are delaying listing properties. The available inventory for buyers is low accelerating the turn-over rate for sellers. Time to sale is often less than ten days. For now, both our Global and Aggressive Portfolios own homebuilding related exchange traded funds.
Researchers Think They Know Why Zebras Have Stripes, and You Might Want Them, Too…For years scientists thought zebra stripes were a form of camouflage, but then they realized predators can’t see that well.
Now they think they’ve found the answer. It turns out flies have a hard time landing on zebras, which researchers attribute to their uneven striping.
When they try to fly around or between the black stripes, the flies bounce off the animals or otherwise miss their landings. The result is fewer bites. To prove it, the researchers cloaked solid-colored horses in stripes and observed the same phenomena.
The implication is that wearing zebra-striped clothing could reduce insect bites. This hasn’t been tested or proven yet, but it makes a good excuse for a fashion statement if hunting or fishing.
Data supplied by HS Dent Research
“When the facts change, I change my mind.
What do you do, sir?” ~ John Maynard Keynes
Our plan is “the plan will change.”
What is your plan?
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