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This Week in Economic News: July 31, 2020

July 31, 2020

Gross Domestic Product (GDP)

GDP experiences historic slump as a result of a voluntary economic shutdown

  • Real GDP dropped by 32.9% for Q2 of 2020. The largest quarterly drop in GDP before this report was in 1958 with a 10% drop.
  • As stores closed and consumers quarantined, consumer spending sunk by 34.6% while consumer savings increased by nearly 26%.
  • Given COVID’s uncertain trajectory, businesses investment dropped by 27%.
  • Congressional stimuli such as the PPP, UI benefits, and Economic Impact Payments increased government spending which may have stemmed the economic bleeding.

(About GDP: The growth rate of GDP measures how much the economy, and therefore a nation’s wealth, is growing.)

Durable Goods

Demand rebounded in May and June as the economy reopened

  • After falling 16.7% and 18.3% in March and April, respectively, durable goods new orders in June increased 7.3% after increasing 15.1% in May.
  • Durable goods new orders excluding both transportation and defense orders, which is a gauge on consumer confidence, increased by 2.4% in June.
  • Core capital goods orders, a leading indicator of business investment expenditures, increased by 3.3% in June after rising 1.5% in May.

(About durable goods: Durable goods gives an insight into the near future on the economy. Should durable goods new orders rise, manufacturing activity must ramp up in order to meet the increased demand for goods.)

Federal Open Market Committee (FOMC)

FOMC leaves interest rates unchanged to accommodate economic recovery

  • According to Chairman Jay Powell, “The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”

(About interest rates: Interest rates are the price of borrowing. When interest rates are low, taking out debt and mortgages becomes relatively cheap. When interest rates are high, lenders earn a higher return on their investments.)

Pending Home Sales

Homeowners are still acquiring the American Dream despite pandemic

  • The National Association of Realtors’ Pending Home Sales Index rose 16.6% to 116.1 in June – a level that surpassed February’s measurement.
  • The last time the Pending Home Sales Index was higher was in January 2006.

(About the Pending Home Sales Index: The Pending Home Sales Index observes signed real estate contracts for homes, condos, and co-ops. Because these contracts are typically signed up to 60 days before the home is sold, the index is a leading indicator of future housing market activity, specifically existing home sales.)

Unemployment Insurance Initial Claims and Continuing Claims

Unemployment Claims Continue to Rise

  • Initial claims increased by 12,000 to 1,434,000 while continuing claims increased by 867,000 to 17 million. The increase in initial claims is the second consecutive increase in almost four months. Should next week’s count be greater than 1 million, initial claims will have its 20th straight week of over 1 million initial claims filed.
  • PUA initial claims decreased by 106,000 to 955,000 while PUA continuing claims decreased by 767,000 to 12.4 million. Total continuing claims across all programs, including PUA, are approximately 29 million. (See note on PUA below.)
  • The record for initial claims was nearly 7 million due to the pandemic. A normal rate for initial claims is an average of 350,000 per week. The record for continuing claims is nearly 25 million due to the pandemic. A normal amount of continuing claims is approximately 2.7 million.

(About unemployment insurance: Initial claims are new claims by jobless workers who are looking to receive unemployment benefits. Continuing claims are those who continue to receive unemployment benefits because they have not found a job yet. Continuing claims does not count all jobless workers – just jobless workers who are receiving unemployment benefits. There may be jobless workers who do not apply for, are ineligible for, or exhausted all of their unemployment benefits which would not be counted.

Note on PUA: PUA provides for retroactivity to January 27, 2020. State challenges implementing PUA led to significant claims backlogs and backdated claims are included in the continuing claims number. For example, if a jobless worker applied and was determined eligible for eight weeks of PUA benefits, but the state processed those claims on week eight, then a total of 8 claims are counted in week eight for the jobless worker instead of one claim each week. In addition, if an individual was potentially eligible for weeks of PUA benefits during the period the state did not have the program operational, the individual could file for multiple weeks of PUA in the same week. As a result, PUA continuing claims are likely an overcount and exceed the number of individuals actually receiving PUA.)

Coming Up:

Employment Situation

When: Friday, August 7, 2020:

What to Expect: Since initial claims were decreasing at the beginning of the month, the jobs numbers may still be positive for the month of July but likely to be less than 4.8 million jobs that were created in June. The unemployment rate will adjust accordingly to the gain or loss in jobs numbers. Should the coronavirus surge, this upcoming report may be the last positive report for awhile.

(About the Employment Situation: The Employment Situation tracks how many jobs were created/lost, the unemployment rate, and wages. This report gives the clearest monthly snapshot of how healthy the economy is doing.)

Want to read more on the fight against Coronavirus? Read our Coronavirus Bulletin here which contains our extensive FAQ about recent federal actions.

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