Due to government-imposed shutdowns connected to COVID-19 mitigation, new jobless claims continued at a high, although slightly diminished pace this week with 4.4 million more unemployed. Over the past five weeks, the total number of jobless claims has reached 26 million, implying an unemployment rate of at least 11%. Next week should see a smaller new claims number, but the overall impact on the labor market is massive and will be reflected in a surge for the April unemployment rate, which will be reported on May 8.
New single-family home sales in March declined, but performed better than expected. Contracts for new sales fell 15.4% from the February pace to a 627,000 seasonally adjusted annual rate. Despite the weakness in March, strength in January and February left the first quarter total of new home sales 6.7% higher than the total for the first quarter of 2019. Data also suggested that sales for smaller builders held up better in March, as they have a greater market share in more decentralized exurban and rural markets. Overall months’ supply of inventory increased to 6.4.
The same pattern was seen for resale housing activity. After reaching a 13-year high in February, existing home sales declined 8.5% in March, the largest monthly decline in more than four years. Inventory remains limited in the resale market, with a months’ supply measure of just 3.4.
In addition to declines in sales volume, the housing market continues to adjust to new market conditions. For example, NAHB survey data collected in early April indicates that 24% of builders operate in markets where virtual inspections may occur. A full 20 percentage points of that share are markets where this is new policy in response to the virus crisis. Thirty-two percent of builders operate in markets where third-party inspections may occur, but for two-thirds of that total this rule was allowed before the current crisis.
NAHB survey data also indicates the impact the virus is having on the remodeling sector. Ninety-six percent of remodelers report declines in customer inquiries. And consistent with single-family and multifamily construction, 59% of remodelers report at least some issues with building material access.
Next week’s data will feature the initial estimate for first quarter GDP growth. With the current recession having begun in March, the data are expected to show negative growth for the quarter, the first decline since the first quarter of 2014. Additional data will explore the current rate of homeownership.
Finally, the debate concerning the impacts of recent fiscal and monetary policy actions is underway. For example, generous unemployment benefits may result in a slowing of some small business re-opening, such as restaurants, due to the difference between offered wages and existing benefits. Additionally, an editorial in the Wall Street Journal on April 23 suggested that recent monetary policy moves would result in inflation. While this is possible in the long-run, in the short-run the economy faces greater risks for deflation, which is a more painful phenomenon for holders of business and household debt. Inflationary pressures should be relieved as the economy reopens.