One Eye on the Economy, and Friday’s Jobs Number

Orion’s brokers are very aware of the programs being offered by wholesalers around the nation, as well as service levels at investors. But they also are aware of what is going on in the U.S. economy since it impacts your client’s ability to repay, and ability to qualify.

Last week was a busy week for announcements, but in general there was renewed optimism as states gradually re-open and ease strict lockdown measures. The May consumer confidence level increased after declining in March and April but remains well-below readings from the past several years. Orion’s management has sliced and diced the number, and it remains clear that the majority of consumers are still concerned about their own financial conditions amid widespread layoffs and an uncertain path to U.S. economic recovery.

In other good news, the number of Americans filing initial unemployment claims continued to decline, with “only” 2.1 million claims filed for the week ended May 23, the lowest amount filed since the pandemic-induced job loss began in March. Continuing claims, or the number of individuals who remain unemployed and receiving benefits, also showed some improvement, falling 3.9 million for the week ended May 16, the first decline during the pandemic period. The numbers are still big, but it appears to be moving in the right direction.

Orion cautions you to be aware of the negative news, however, as other U.S. data released last week continued to reveal the negative economic impact of the coronavirus. U.S. durable goods orders sank 17.2% in April, one of the largest declines on record. (Orders for computers & electronics products fell only 0.3%, as businesses tried to supply employees to work from home.) The second estimate of Q1 real GDP showed a 5.0% annualized rate of decline, worse than the 4.8% decline that was originally reported, and we at Orion believe that incoming data still suggest an even sharper decline in Q2.

Personal spending plunged 13.6% in April, the largest decline on record, and we expect that trend to continue for the entire second quarter of 2020. Incomes were up, but our brokers should know that this was a result of a massive surge in government transfer payments. Orion’s management looks for real GDP to plunge in the second quarter.

Which brings us to this week’s unemployment data. Orion does not expect it to be good. Before March, the biggest one-month decline in nonfarm employment in the last 70 years was March 2009, when payrolls declined by 800K. The 881K fall in March 2020 nonfarm employment was then followed by the unprecedented 20.5M decline in April. Coming out Friday, May’s drop is expected to be 8 million! And for the unemployment rate to climb to 20%. Let’s hope that many of these temporary layoffs don’t turn into permanent ones.

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