Second Quarter GDP Worst Reading on Record

John Smith
January 1, 2023
5 min read

The first look at second quarter GDP confirmed it to be the worst reading on record, due to the pandemic's impact on our economy. Unemployment remains extremely elevated as well, but the housing sector did deliver some positive news.

Initial Jobless Claims Rise in the Latest Week

Jobless Claims Week of July 25, 2020

Another 1.434 million people filed for unemployment benefits for the first time during the week ending July 25, about 12,000 more than the previous week. This marked the second consecutive week of higher figures and reflects some states reclosing portions of their economy and the exhaustion of PPP funds. California (+249K), Florida (+87K) and New York (+85K) reported the largest gains.

Continuing Claims, which measure people who continue to receive benefits, also increased from 16.79 million to 17.018 million.

In addition to the headline jobless claims figure, 830,000 Pandemic Unemployment Assistance (PUA) Claims were also filed in the latest week. PUA Claims represent people like gig workers and contractors who would not usually be approved for unemployment benefits. Continuing PUA Claims did improve slightly from 13.18 million to 12.4 million but are still extremely high.

All in all, the total amount of people receiving some type of benefits improved slightly from 31.8 million to 30.2 million. If we divide this total into the labor force of 160 million, there is likely a 19% unemployment rate.

Two Updates from the Housing Sector

Case Shiller Home Price Index May 2020

The latest Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed that home prices nationwide rose 4.5% on an annual basis in May. This was a drop from the 4.6% year-over-year reading in April.

The 20-city Index decreased from 3.9% in April to 3.7% in May but considering the adversity that the housing market has faced due to the pandemic, these are still very strong appreciation figures. Part of the reason for the strong gains is a lack of supply, as the Existing Home Sales report for June showed that inventory is down 18% when compared to the same time a year ago.
Regionally, price gains in Phoenix, Seattle and Tampa continued to be the strongest in the nation. Phoenix posted a 9% year-over-year price increase, followed by Seattle with a 6.8% increase and Tampa with a 6.0% increase. Price gains were smallest in Chicago, New York and San Francisco.

Pending Home Sales June 2020

On the sales front, Pending Home Sales were up 16.6% in June after rising 44.3% in May, which was just above the expected 15% gain. On an annual basis, sales were up 6.3% when compared to June of last year, after being down 5.1% annually in May.

The Pending Home Sales report is an important one because it reflects how many signed contracts on existing homes there were in June. The 16.6% gain speaks well for future existing sales.

Fed Willing to Do Whatever It Takes

The Fed held their regularly scheduled Federal Open Market Committee meeting last week and of note, Fed Chair Jerome Powell said that the Fed would be willing to do whatever it takes to foster maximum employment in efforts to return to pre-pandemic levels.

Powell said the Fed will continue to buy assets, including Mortgage Backed Securities, at least at the current pace. The Fed also said they would be willing to do more if they thought it would help.

This is significant because the Fed's current purchases have been a stabilizing force in the markets. The Bond market took the Fed's remarks as a positive sign that the Fed is going to be buying Mortgage Bonds for a long time.

Speaking of the Fed, their favored measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation increased 0.4% from May to June while also rising from 0.5% to 0.8% year over year. Core PCE, which strips out volatile food and energy prices, increased 0.2% in June while decreasing from 1.0% to 0.9% annually.

Core PCE is most important to the Fed and it is well below the Fed's target of 2%. This does give the Fed cover to continue its asset purchases without the fear of inflation. Also of note within the report, Personal Incomes fell 1.1% in June, while Personal Spending rose by 5.6%, marking a second straight month of increases.

And of Note

The much-anticipated advanced or first look at second quarter GDP was reported at -32.9%. Though this was a little better than the -34.7% expected, it was the worst reading on record. Based on this decline, we will need to see a 50% gain in GDP to get back to where the economy was before the pandemic began.

There was some good news from the manufacturing sector as the Chicago PMI (which measures the health of manufacturing activity in that region) came in better than expected at 51.9. Readings above 50 indicate expansion while readings below 50 indicate contraction.

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