Economic Outlook: Layoffs Continue but Virus' Growth Rate Slows

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The latest weekly economic analysis from NAHB Chief Economist Robert Dietz on the COVID-19 pandemic: The wave of jobless claims continued this week with 6.6 million new claims, raising the total to over 16 million over the last three weeks. These numbers support our forecast for an unemployment rate that will temporarily rise to at least 13%. However, internet search trends suggest that next week’s data will show a lower level of jobless claims. Nonetheless, the April employment report will be ugly with significant job losses and a dramatic climb for the unemployment rate, which was just 4.4% during mid-March. The Federal Reserve moved aggressively again this week, providing $2.3 trillion in additional liquidity for state and local governments, small and medium-sized businesses, and an expanded set of financial institutions. Additionally, Chair Jay Powell noted in public comments that the Fed is prepared to do more to ensure the economy has sufficient liquidity as the public health challenge is tackled. It is important to note that science and capital, in the form of medical infrastructure, will be required for the ultimate solution to the virus situation and that is fundamentally what is required for the economy to return to work. As such, any economic outlook must now include consideration of data associated with the virus. While new cases continue to grow in the U.S. at a rate of just above 30,000 a day, the growth rate is slowing. This more linear growth trend is an improvement over initial forecasts of exponential growth and suggests mitigation efforts are having some success. Data from other countries with similar trends suggest that an 8- to 10-week mitigation effort is a reasonable forecast for aggressive efforts. While case data is slowing in initial outbreak areas like New York City and Washington state, infections are expanding in other parts of the nation. Survey data from NAHB this week shows the degree to which housing demand and construction is being affected. Nearly all home builders (96% of survey respondents) are reporting declines in buyer traffic, with 72% of builders citing "major" declines. Other large impacts include:
  • 87% of remodelers citing cancellations of existing improvement projects;
  • 86% of builders noting delays with project approvals;
  • 82% citing delays with engineering inspections; and
  • 51% reporting declines in the ability to obtain new construction loan financing.
The NAHB/Wells Fargo Housing Market Index (HMI) will be published on April 15 and will provide the best measure of where the industry stands as a result of the virus and ongoing mitigation efforts. The HMI tracks regional sentiment, as well as traffic and future sales expectations. On April 16, Census data will provide estimates of housing starts in March; the figures are expected to serve as a barometer of the beginning of the economic slowdown. In the coming months, we expect the economic data to be terrible, but we are also expecting gradual improvement in the virus data. It is those data that are key to a re-opening of the economy. In the meantime, fiscal and monetary policy will be needed to provide a bridge to an eventual rebound and limit ongoing economic losses.

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