Zillow Market Pulse: April 30, 2020

April 30, 2020

Consumer spending recorded the latest in an ongoing series of "all-time largest one-month declines." Another 3.8 million people filed for unemployment benefits in the week ending April 25 bringing the six week, non-seasonally adjusted total to almost 28 million. And the stock market surged in April, but many question whether that will continue into May.

• All-time largest one-month decline in consumer spending

  • Consumer spending fell 7.5% in March from February, easily the largest one-month decline since the series began in 1959.
  • The personal savings rate rose to 13.1%, the highest level in over 38 years.

• Another 3.8 million unemployment claims were filed

  • More than one-in-six people employed in mid-March have since filed an unemployment claim.
  • Just under 18 million people are receiving unemployment aid.

• The stock market has surged in April, but can the rally continue?

  • The S&P 500 has risen about 30% since hitting a recent bottom on March 23.
  • But the future outlook is mixed, and bankruptcies are beginning to mount.

So what?

March's 7.5% monthly decline in consumer spending was by far the largest one-month decline since tracking began in 1959, and marked another brutal economic reading as we approach the next phase of this crisis. To make matters worse, like other data released in recent weeks, the worst is likely still to come. The March figures encompass just the initial weeks of the crisis and subsequent localized shutdowns — the entire national economy didn't enter full shutdown mode until April. While much of this pullback in spending can be attributed to the record surge in unemployment, it's clear that those people who have the means – including some who may not have lost their jobs — are saving more of their income than before. The personal savings rate, as measured by the Bureau of Economic Analysis, rose to 13.1% in March from February, the sharpest one-month increase in the series' history and its highest level since 1981. 

A seasonally adjusted 3.8 million people filed for unemployment in the week ending April 25, the sixth-straight reading of at least 3.3 million – an astounding figure considering that before March, there had never been a reading of more than 700,000. More than one-in-six people employed in the middle of March have filed a claim for jobless benefits in the last six weeks. And even though the latest numbers likely indicate an unemployment rate of close to 20%, the number of people in need of unemployment assistance might still be understated. A study from the Economic Policy Institute suggests that about 50% more people likely qualified for aid than were officially counted as having filed a claim in the four weeks ending April 18. The report speculated these uncounted unemployed workers were either obstructed from applying or didn't even try.

April 2020 will be remembered for a number of reasons, including a historic surge in unemployment claims, the shutdown of a wide portion of the economy, oil prices that briefly went negative and, ultimately, a sharp contraction in GDP. But April 2020 will also be marked by a historic rally in stock markets. Somehow, after plummeting to a recent low on March 23, the S&P 500 is now up about 30% and barely below where it was to start the year. Much of this improvement can be chalked up to unprecedented intervention by the Federal Reserve, which eased liquidity constraints across a number of markets – including that for corporate debt – and ultimately buoyed investor confidence. Now, the question is whether the rally will persist or whether this was just a temporary improvement before the return of a bear market. The Fed has asserted that it will continue its support to ensure markets operate smoothly, but it's unclear whether that will be enough. The Chief Investment Officer of JP Morgan Asset Management suggested today that a return to normal is a long way off, comparing the current state of the market to the second quarter of 2008 — remembered as a moment of calm in the early days of the Great Recession, just before the true scale of what had actually happened (business closings, impact of unemployment on consumer behavior, bankruptcies, etc.) began to emerge. Some signs of stress have begun to appear across a number of industries of late. J. Crew announced plans to file for bankruptcy today, and companies such as Hertz, JC Penney and Chesapeake are also reportedly considering a similar move. And that may just be the tip of the iceberg – a recent study conducted by Morgan Stanley found that 16% of U.S. companies were barely or unable to meet their debt obligations even before the crisis unfolded.

 

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