The May 25 week in the US starts off with the Memorial Day holiday, but it quickly speeds up from there. Regional conditions data for May are the highlight of the week, with reports from the Philadelphia, Dallas, Richmond and Kansas City Federal Reserve banks and the Chicago PMI on tap ahead of the ISM readings the following week. In addition, the revision to first quarter GDP and the April personal income and consumption data will be released later in the week.
On Tuesday, the Philadelphia Fed will publish their non-manufacturing reading for May, following an improvement in the manufacturing index for the region. The services index plunged by over 60 points in April, so it would take a significant recovery to make a noticeable difference.
Home price measures for March will be reported later in Tuesday morning and should indicate further increases. This will be the first month to include any COVID-19 impact.
Consumer confidence could post a small rebound in May, as suggested by the preliminary Michigan Sentiment data released on May 15. State reopening are one positive factor, but alone will not be enough unless consumers believe that further economic improvement will follow.
Released at the same time, new home sales likely slipped further in April due to social distancing. However, a May rebound is possible if the weekly MBA mortgage application data are any indication. After an initial decline, applications for new mortgages rose through much of April and May.
Dallas Fed manufacturing data for May, also released on Tuesday, are expected to post a modest rebound, in line with already released regional and Markit data.
Manufacturing data from the Richmond Fed, released on Wednesday, should continue that trend, but there is a risk of another decline given that Virginia has reopened more slowly than others.
Services data from the Dallas Fed will also be released Wednesday morning and, like the Philadelphia Fed data, will show the continued impact of COVID on the sector after hitting a record low in April. Some improvement is possible due to partial state re-openings, but the services sector will recover more slowly than the manufacturing sector.
The Federal Reserve’s Beige Book will be released Wednesday afternoon and should repeat what is already widely known – that the economy continued to contract over the last six weeks. What would be of interest is any hint that some sectors are primed for improvement.
On Thursday, the weekly initial claims level is expected to decline further but remain in the millions. Even as backlogs and filing issues are worked down, layoffs continued in some sectors that held off until this point.
First quarter GDP is expected to be revised up modestly from the 4.8% decline in the advance estimate, with an upward adjustment to March retail sales the key factor. Unfortunately, that only sets a higher base to fall from since most of the COVID-19 impact will be seen in the second quarter.
Durable goods orders will fall sharply in April report released on Thursday, reflecting the first full month of the shutdowns. Transportation orders, particularly for motor vehicles, will be the main reason for the decline- but not the only reason.
Demand fell across virtually all sectors, while shipments will be severely curtailed by factory shutdowns. The Federal Reserve already reported a sharp decline in manufacturing production in the month.
Existing home sales declined briskly in April and the pending homes data released on Thursday should suggest another sales decline is likely for May. Even as buyer demand returns – and the MBA applications data suggest it is moving in that direction – homeowners will continue to be reluctant to leave their current homes.
The Kansas City Fed’s manufacturing index for May, like the other conditions data before it, should reflect further contraction, but at a slower rate. After a sharp April decline, a partial rebound to a smaller negative is expected.
April data on personal income and spending are expected to be weak by all measures. Wages and salaries fell sharply in the month, reflecting the millions of jobs lost. While hours worked ticked up and average hourly earnings surged due to disproportionally heavy layoffs on the lower end of the income scale, it will not be enough to offset the sheer magnitude of the job losses.
Providing some offset should be an increase in transfer payments as the government’s stimulus plans were disbursed. Tax payments should also be reduced, particularly in a month when seasonal adjustment expect a large outflow from consumers. Still, disposable income will decline due to the sharp drop in wages.
Retail sales fell by 16.4% in the month and was down 17.2% outside of motor vehicles and parts on declines in every retail category except at non-store retailers. As a result, current dollar PCE, and by extension real PCE, will decline sharply in April and start off the second quarter on a difficult footing.
The inflation measures are expected to weak, reflecting the declines seen in the PPI and CPI reports this month. The PCE price indexes, usually closely watched, will get less attention as economic contraction is a much larger issue right now.
The advance trade data for April, released Friday morning, will give an early look at the full COVID impact on inventories and international trade. The full trade report will be released on June 4.
The final May regional conditions data release, the Chicago PMI report, could see a modest rebound as some Midwest manufacturing firms got back to business. But like the other regional data, the index is likely to remain below the breakeven point for a few more months until states move into later phases of reopening.
Finally, the Michigan Sentiment index for May could see a modest upward revision, reflecting some states moving toward partial reopening at the end of the month. This would put the May index further above the April reading, but still well below the March levels.