Morning Report: Americans will be fleeing the cities.

Vital Statistics:

 

Last Change
S&P futures 3034 -8.1
Oil (WTI) 34.44 -0.69
10 year government bond yield 0.68%
30 year fixed rate mortgage 3.28%

 

Stocks are flattish this morning despite riots in major cities across the US. Bonds and MBS are flat.

 

Trump will be meeting with the Attorney General this morning to figure out how to respond to the violence in many US cities.

 

The big economic news will be the jobs report on Friday. The Street is looking for a 7.7 million drop in jobs, an unemployment rate of 20% and a 7% increase in average hourly earnings. More and more states are re-opening so hopefully this will be the last jobs report with negative payroll growth.

 

Construction spending fell 2.9% in April, which was a little bit better than expected. The ISM Manufacturing Index fell to 43, which again was a little bit better than expected.

 

Personal Income rose 10.5% in April, largely due to the CARES Act. Personal consumption expenditures fell as people were unable to go to the stores. This caused a big jump in the savings rate, up to 33% from 10%, which ironically shows how big Keynsian spending plans often don’t have the desired effect.

PCE versus PI

 

The riots are certainly not going to help the jobs situation of course. Much will depend on how long they last. If they peter out over the next few days then we probably won’t see a major effect.

 

I can’t escape the idea that the riots and COVID have set in place the circumstances for a massive exodus from the big cities, similar to what we saw in the late 60s. During the 60s, manufacturing jobs fled the cities to the suburbs as many employees no longer wanted to work there. This time, I could see white collar jobs fleeing. When people can largely work from home, why pay top dollar for office space in the cities? And if the jobs relocate, why spend ten grand a month for a 1200 square foot apartment? I could see this turning out to be the catalyst for a massive expansion of the suburbs and exurbs,  which will be good for the homebuilders. Realtor.com noted that Connecticut has seen something like a 75% increase in people moving out of NYC.

 

 

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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