Continued poor economic outlook

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by Paul Lengemann, BullsnBears Economist

The US economic outlook continues to be quite poor although various recently released indicators point to some modest improvements in economic activity. For instance, the Chicago Fed National Activity Index in June rose to a record high of 4.11 from an upwardly revised 3.5 in May, as some states reopened their economies after the coronavirus lockdown.

The number of Americans filing for unemployment benefits increased 1.42 million in the week ended July 18th, accelerating for the first time in nearly four months and compared with market expectations of 1.30 million, as a resurgence in new COVID-19 cases forced several states to scale back or pause the reopening of their economies. The latest number lifted the total reported since March 21 to 52.7 million. The 4-week moving average, which removes week-to-week volatility, eased to 1.36 million from 1.38 million, while continuing jobless claims decreased to 16.20 million in the week ended July 11th, below market forecasts of 17.07 million.

The consumer sentiment index reached a record low of -18.09 in April. Three of the four broad categories of indicators used to construct the index made positive contributions: production (+2.22), employment (+1.74), personal consumption and housing (+0.4) while the sales, orders, and inventories categories fell to -0.24.

The index’s three-month moving average, CFNAI-MA3, which moved up to -3.49 in June from -6.36 in May, still points to a likely recession. Periods of economic contraction have historically been associated with values of the CFNAI-MA3 below -0.70.

Inflation expectations for the year ahead edged up to 3.1% from 3% and those for the next 5 years increased to 2.7% from 2.5%.

Housing starts increased 17.3% to an annualized rate of 1,186K in June, above market forecasts of 1,169K and following an upwardly revised 1,011K in May. It is the highest reading in three months, with the biggest increase seen in the Northeast. Meanwhile, building permits went up 2.1% to 1,241K, below expectations of 1,290K.

Retail sales surged 7.5% m/m in June, following an upwardly revised record 18.2% rise in May. Year-on-year, retail sales went up 1.1%.

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