Increasing Case Counts Slow Reopenings
While financial markets are focused on reopening developments and rising virus case counts, we did get May Personal Income and Spending this morning and it offered a fairly as-expected read on the state of the consumers income and spending in May. Personal income for the month was down –4.2%, as the one-time stimulus checks from April made for a tough month-over-month comparison. Meanwhile, personal spending rose 8.2% versus April as consumers were quick to spend the stimulus checks and reopening economies allowed some to leave home and head to the vaguely familiar confines of the shopping center. Recall, spending plummeted –12.6% in April making it the steepest drop in the series’ 60-year history while the rebound in May was similarly record-breaking. Compared to pre-lockdown February, however, May spending was off –11.7%. Finally, the Fed’s favorite inflation indicator, core PCE, was unchanged at 1.0% (YoY). For the month, core PCE was up 0.1% after a –0.4% drop in April.
As we mentioned, financial markets are focused on reopening developments and virus trends but the above mentioned spending numbers will get some attention anyway. The problem is the past two months have seen a steep decline in spending and an almost equally large rebound that was clearly aided by the stimulus checks. So, it’s hard to gauge what will be the trend in spending as the summer season continues, but it will undoubtedly be influenced by the trend in virus cases. If the numbers continue higher, you can expect spending to slow once again. Texas has announced a pause in its reopening plans and Disney has announced a delay in Disneyland’s planned July 17 reopening, and rumors are swirling that Disney World may follow suit given the expanding case counts in Florida. Disney World is also set to host the reopening of the NBA and that could be up in the air as well. So, as they say, stay tuned for this is a rapidly evolving situation.
30-Year MBS Yield Spread Remains Above One-Year Average
We’ve been closely following the yield spread of the FNMA 30-year current coupon MBS to a 5yr/10yr Treasury blend, particularly after the March volatility, which is clearly evident in the graph below. Since that spike in spreads, however, volatility has calmed but current yield spreads to Treasuries remain above the one-year average of 102bps.
Decline in Initial Jobless Claims Continues
The most timely and frequent look at the tenuous economic recovery has to be the Weekly Initial Jobless Claims series. As shown, claims peaked at a record 6.897 million on March 27th while the latest week saw claims dip from 1.54 million to 1.48 million as the pace of firings slowed but they remain stubbornly high. Expectations were that claims would drop to 1.32 million so it continues a trend where actual claims remain above expectations, so it’s disappointing in that regard. So while claims continue to recede from the record high back in March, they are continuing to decline at a slower pace, and if that trend persists it points to an elevated unemployment rate well into the next year, and the Fed remaining very accommodative.
|Treasury Curve||Today||Chg Last Wk.||LIBOR Rates||Today||Chg Last Wk.||FF/Prime||Rate||Swap Rates||Rate|
|3 Month||0.13%||-0.01%||1 Mo LIBOR||0.18%||-0.01%||FF Target Rate||0.00%-0.25%||3 Year||0.254%|
|6 Month||0.16%||-0.01%||2 Mo LIBOR||0.28%||-0.04%||Prime Rate||3.25%||5 Year||0.350%|
|2 Year||0.18%||-0.01%||6 Mo LIBOR||0.38%||-0.04%||IOER||0.10%||10 Year||0.650%|
|10 Year||0.66%||-0.07%||12 Mo LIBOR||0.56%||-0.02%||SOFR||0.09%|