Consumer Spending Slows – April 2020 Edition

The coronavirus continued to be the focus for investors. This week’s data on consumer spending and housing starts reflected the anticipated decline in economic activity. Daily volatility in mortgage markets remained low, and the change in rates for the week again was small.

Thursday night, President Trump unveiled broad guidelines for a path to relaxing the restrictions which have been in place to limit the spread of the coronavirus. This process would occur over three “phases” as necessary conditions are met. It will be up to governors to decide when each state is ready to implement the steps.

Since consumer spending accounts for about 70% of all economic activity in the U.S., Wednesday’s retail sales data provided another key indication of the negative impact of the outbreak. Following a decline of 0.4% last month, Retail Sales in March sunk 8.7% from February, which was relatively close to expectations. While strength was seen in select areas such as grocery stores and pharmacies, consumers broadly cut back purchases overall.

In March, housing starts dropped 22% from February, which was a little more than expected. Building permits, a leading indicator of future construction, fell 7% from February. Despite the losses in March, though, both starts and permits were at higher levels than a year ago.

Also reflecting the impact of the coronavirus, China reported that its first quarter Gross Domestic Product (GDP), the broadest measure of economic growth, contracted by 6.8%. This followed an increase of 6.0% in the fourth quarter and was the first decline on record. The report on US first quarter GDP growth will be released on April 29.

Looking ahead, the coronavirus will remain the main focus. Investors will be watching for news about additional Fed actions, government fiscal stimulus programs, and the reopening of the economy. For economic data, Existing Home Sales will be released on Tuesday and New Home Sales on Thursday. Durable Orders and Consumer Sentiment will come out on Friday.

Weekly Change
10yr Treasury fell 0.10
Dow rose 200
NASDAQ rose 400
Tue 4/21 Existing Home Sales
Thu 4/23 New Home Sales
Fri 4/24 Durable Orders

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