Economic Update – Week of August 30, 2020

  • The US economy saw the worst decline in GDP for any quarter since the Great Depression.
  • California’s unemployment has dropped slightly but is still above 12% (4% this time last year).
  • Pending home sales continue to rise, but low inventory continues to be a problem. 
  • Consumer confidence has dropped to a recent low due to uncertainty in the economy.

GDP. The US economy got crushed in the second quarter, with the worst decline in real GDP for any quarter since the Great Depression.  GDP fell 31.7%, which is historic, but somehow better than economists predicted. The good news is that the long road to recovery has started.  An example of the recovery is that existing homes were sold at 5.76 million annually, which is the fastest pace since the housing bubble burst.  After originally plummeting in March, April, and May, the slowest since 2010, sales have soared, hitting a 5.86 million annualized pace in July.

California Job Outlook.  Employers added only 140,400 payroll jobs from mid-June to mid-July to a total California workforce of nearly 15.8 million.  The July job gain was dramatically less than the record 542,500-job rise in June when restaurants, gyms, and other businesses briefly reopened amid hopes that the virus was abating.  California’s unemployment rate lowered to 13.3% last month, down from 14.9% in June.  A staggering 4.8 million Californians are still collecting jobless benefits and to make matters worse, businesses continue to announce they will be closing permanently.  The state’s current jobless rate remains higher than its 12.3% peak during the Great Recession. 

Pending Home Sales.  The Index of Pending Home Sales rose 5.9% in July as compared with June, according to the National Association of Realtors.  Making July the third consecutive month where Americans signed contracts to purchase homes has risen.  Compared with a year ago, contract signings are up 15.5%.  The index measures real-estate transactions where a contract was signed for a previously-owned home but escrow had not yet closed (benchmarked to contract-signing activity in 2001).  With the demand for homes high, properties are flying off the shelf.  Nine contracts are being signed for every 10 new listings.  The NAR now expects existing-home sales to increase to a pace of 5.8 million in the second half of the year.  If that happens, the rate of sales for the entire year would be 5.4 million, which equates to a 1% gain from a year ago.   However, the housing market does have one major challenge that will prevent sales volumes from hitting records: Inventory.  The number of homes available for sale is historically low. 

New Home Sales.  New single-family home sales increased 13.9% in July to a 901,000 annual rate (a third consecutive monthly gain).  Remarkably, new home sales are now 16.4%, which is higher than in January.   Several factors that have led to and help continue strong sales include affordability because of a historically low-interest rate.  Urban unrest has shifted buyers away from dense environments.  Lastly, there is a swelling demand for houses but a lack of inventory.

Consumer confidence.  Consumer confidence fell in August to a new pandemic low after a surge of coronavirus cases during the summer which has led many Americans to be more pessimistic about an economic recovery.  The index of consumer confidence sank to a six-year low at 84.8 this month from a revised 91.7 in July, the Conference Board reports.  The surprising decline in consumer confidence puts the index below April’s 85.7 reading during the height of the economic lockdown.  The expiration of the $600, which was a safety net for so many, and lack of a new bill could also be seen as reasons for lower confidence as well.  Some good and bad news is that consumer spending has rebounded in recent months but increasing concerns amongst consumers about the economic outlook and their financial well-being will likely cause spending to slow in the coming months.

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