May jobs report: Have we passed the worst?
Wall Street rallied hard Friday morning in response to May's stunning jobs report. The Labor Department data shows that employment went up by 2.5 million in May. That brings us to an unemployment rate of 13.3%. That is significantly better than the 19.5% rate predicted by economists and the 14.7% unemployment rate we saw in April. The hospitality and leisure sectors of the economy showed the most gains, adding 1.2 million jobs in May. That's the largest one-month increase since 1939.
The Dow Jones Industrial Average futures skyrocketed up by more than 700 points after the release of the data. Futures were already up by 300 points before the release came out. The 10-year Treasury note yield also shot up to 0.909% in early Friday trading.
It is important to note that the survey to cull this data was sent out the week of May 12. Therefore it does not include information from the last couple of weeks of May in which states continued to loosen shutdown rules tied to the coronavirus pandemic. That is part of the reason why, despite dreadful predictions about the severity of the report, Dow futures were up. Economists view this data as a sign that the worst may be past us, giving them positive sentiment and confidence moving forward.
Private payrolls lost 2.76 million jobs in May, according to ADP's report. Meanwhile, the Bureau of Labor Statistics shows another 1.87 million Americans filed initial unemployment claims over the last week. The continuing claims, meaning people who have filed for at least two weeks in a row, is just over 21.5 million people.
A lot of people will wonder why, with numbers this abysmal, Wall Street continues to rally? The answer is simple: computers don't have feelings.
In an interview with CNBC, the chief market strategist for Prudential Financial, Quincy Krosby, said, "The market always seems heartless, without any emotion, without caring, without empathy. But that's the nature of the market. The algorithms almost certainly have no shred of empathy. They're not supposed to."
This week the S&P 500 hit its best 50-day stretch of all time. The Nasdaq Composite posted almost a full week's worth of wins. The Dow jumped back over 26,000 points. Why? Many economists believe we are past the worst of the COVID-19 economic issues. Also, the situation America is embroiled in right now is not unfamiliar territory.
In 1968, Robert Kennedy and Dr. Martin Luther King Jr. were assassinated, the Civil Rights Movement was ongoing with protests and riots, there was the H3N2 virus that killed more than 100,000 Americans and North Vietnam had just launched the Tet Offensive. In Q1 of that year, the economy took a nosedive only to rally by 24% in Q2. That's what many economists are looking at as they predict how 2020 will advance for America.
However, the upswing for the economy will be a long, arduous climb back to the levels we saw in Q4 2019. The Atlanta Federal Reserve predicts that the gross domestic product in the United States will fall by 52.8% in Q2. Earlier this week, the Congressional Budget Office estimated the impact of the coronavirus could set normal economic activity back by a full decade. The CBO says the virus will likely drain about $7.9 trillion from the GDP over the next ten years.
Housing still a positive
On the periphery of the headlines in America right now, homebuyers are getting back into the market. With yet another week of incredibly low-interest rates, Freddie Mac's economists expect homebuyers to come out in droves for summer 2020. The 30-year fixed-rate mortgage average is 3.18% this week, according to Freddie.
However, this expected surge is only increasing demand for what was already a scarce commodity. “The gap between supply and demand has widened even further than the large gap that existed prior to the pandemic,” according to Freddie Mac's economists. In fact, Realtor.com states that the median listing price for a home hit $330,000 in May, a new all-time high. It's expected that home prices will hit all-time highs in about 35 of 50 metros studied. Conversely, inventory is down about 20% year-over-year, which, according to Realtor.com, will only serve to drive prices higher as more buyers get out into the market.
