Zillow Market Pulse: April 6, 2020

April 6, 2020

Daily economic output may have fallen by almost 30% in the last month. Consumers' expectations for the labor market, housing market and overall economy all took a big step back in March. And the Fed stepped in again, this time to help get loans to small businesses.

• New York Fed's Survey of Consumer Expectations shows a deep, broad drop in confidence

  • Americans' expectations for the labor market tumbled.
  • Expectations for future home price appreciation fell to the lowest on record.

• Study shows at least a quarter of the economy is out of commission

  • A Moody's study suggests that daily economic output in the U.S. has fallen about 29% compared with first week of March.
  • 8 in 10 counties in the U.S. are under lockdown orders, representing almost 96% of national output.

• Federal Reserve plans to purchase small business payroll loans

  • The Fed announced the opening of a new lending facility, designed to make it easier for banks to make more loans.
  • The CARES act includes forgivable loans allowing small- and medium-sized businesses to cover payroll costs and other expenses.

So what?

The March reading of the New York Fed's Survey of Consumer Expectations – one of the first surveys of its kind to cover virtually the entire month of March, just as the coronavirus began to hit the U.S. in earnest — confirmed consumers' dismal outlooks. Just about every measure of the public's view on the future of the economy took a significant hit in recent weeks, especially the labor market indicators. On average, respondents estimated that there is an 18.5% chance of losing their job in the next 12 months, up 4.7 percentage points from February and the highest reading in the series’ history. The outlook for the housing market took a large step backward as well – households expect home prices to grow just 1.3% in the next year, down sharply from February's reading of 3.1% and the lowest reading on record. It's important to note that the survey only dates to 2013, so does not include confidence or expectations measures from the period covering the Great Recession. Still, the expectation of a deceleration in home price growth was expected by all groups surveyed, with both lower-income and higher-income respondents showing pessimism.

Recent studies shed light on just how substantial the sudden economic stop the nation has endured over the past month or so has really been — and how much greater it could get should the spread continue. More than 80% of states (41 out of 50) have implemented some level of business closures in recent weeks, and eight out of every ten counties in the U.S. are now under lockdown orders. The 80% of counties currently in the midst of a shutdown are responsible for nearly 96% of the nation's overall economic output, according to a study conducted by Moody's Analytics. What's more, the study suggests that daily output in the U.S. has already fallen about 29% from the first week of March, the last full week before the crisis hit the U.S. in force. For context, annual output fell 26% during the Great Depression, while quarterly output fell just 4% during the Great Recession. It's unlikely that this 29% monthly decline in output will be sustained for more than a couple months, but the analysis also likely underestimates the total hit to U.S. activity because it fails to consider longer-term drops in output because of higher unemployment and loss of household/business wealth and confidence.

In an encouraging piece of news, the Federal Reserve announced on Monday that it was opening a lending facility aimed at freeing up financial institutions to issue loans to small businesses. The CARES act – the $2.2 trillion federal spending bill passed a couple weeks ago – provides forgivable loans to eligible small- and medium-sized businesses aimed at covering payroll costs, utility payments, mortgage interest, rent and other operational costs for about 2 months. But banks complained of insufficient room on their balance sheets for them to be able to issue the required number of loans. The new secondary market created by the Fed will enable these banks to continue to issue these loans, which are crucial in supporting the ~30 million small businesses across the country that employ about 50% of the workforce. The Fed has now launched six separate lending facilities in the last several weeks, all aimed at ensuring markets continue to function amid the widespread shutdowns and volatility caused by the coronavirus pandemic.

Click here to read past editions of Zillow’s Market Pulse updates.

The post Zillow Market Pulse: April 6, 2020 appeared first on Zillow Research.

via Zillow Market Pulse: April 6, 2020