Morning Report: Second Quarter GDP drops by a third

Vital Statistics:

 

Last Change
S&P futures 3218 -38.6
Oil (WTI) 40.23 -1.12
10 year government bond yield 0.55%
30 year fixed rate mortgage 2.98%

 

Stocks are lower after a lousy GDP print. Bonds and MBS are up.

 

Today is a big day for earnings, with heavyweights such as Google, Amazon and Apple all reporting.

 

GDP fell by 32.9% in the second quarter, which was driven by a 34.6% drop in consumer spending, partially offset by 18% increase in Federal spending. Note that these are annualized growth rates, so the economy didn’t really shrink by 33% in the second quarter. Still it was probably the worst print since the Great Depression. NPR puts the quarter from hell in perspective:

 

GDP NPR

 

The FOMC didn’t make any changes in its FOMC statement, although Jerome Powell mentioned that the rate of improvement in the economy is decelerating, which many are taking to mean he expects a double-dip recession.

 

Initial Jobless Claims came in at 1.4 million again.

 

Pending Home Sales increased 16% according to NAR. “It is quite surprising and remarkable that, in the midst of a global pandemic, contract activity for home purchases is higher compared to one year ago,” said Lawrence Yun, NAR’s chief economist. “Consumers are taking advantage of record-low mortgage rates resulting from the Federal Reserve’s maximum liquidity monetary policy.”  Consumers are beating feet out of the cities. The Northeast reported a 54% increase in pending home sales from May to June, but sales are still just about flat YOY.

 

The demand is pushing home prices to record highs. “When the pandemic helped tip the U.S. economy into recession, most homeowners and home buyers braced for falling house prices,” says realtor.com Chief Economist Danielle Hale. “That’s what happened in the last recession. But that’s not what we’re seeing in today’s market. We had a housing shortage already, and the pandemic has created conditions that have only worsened it.” It kind of amazes me that people are comparing this recession to the last one, which was caused by a burst residential real estate bubble. The two aren’t remotely comparable, at least as far as housing is concerned.

Author: Brent Nyitray

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

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