May Starts Out With Rebounds In Leading Sectors



We are now starting to get the monthly data from May, which allows month over month comparisons with the first full month, April, that the coronavirus recession was in full swing. A few are leading indicators, so let’s take a look.

The ISM Manufacturing Index

During the month of May, the regional Fed new orders indexes all rebounded somewhat, strongly suggesting that the ISM manufacturing index would follow suit. And it did, albeit not as significantly. The total index rose from 41.5 to 43.1, while the more leading new orders index rose from 27.1 to a still-awful 31.8:

Perhaps more significantly for the well-being of the economy overall, the employment component (not shown) rose from 27.5 to 31.8. This is still a huge contraction, but comes in the category of “less awful.” On Wednesday, the employment component of the broader ISM services index also rose from 30.0 to a less awful 31.8.

Light Vehicle Sales

May light vehicle sales, as reported by the Autodata Corporation, also rose, up 41.5% to 12.2 million units annualized vs. 8.6 million in April. They are off 28.6% from the recent peak in February:

[source: Haver Analytics]

Housing’s sharp turnaround continues

Two weeks ago, I wrote that housing permits and starts, as well as mortgage applications, were responding positively to lower mortgage rates. Last week, the very volatile but even more leading new home sales were reported for April (red in the graph below) and also showed a slight rebound from March, also powered by lower mortgage rates (Blue) (inverted, right scale):

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Meanwhile, the weekly purchase mortgage applications also continue to surge. On Wednesday, these rose further and are now only about 10% off their all-time peak set in February:

A note about employment

Jobless claims are a leading indicator as well. As of last week, initial claims continued their trend of the past few weeks of being “less awful,” while the total number of claims as shown in continuing claims actually declined slightly:

ADP’s monthly employment report showed a very sharp slowdown of about 85% to a still-terrible loss of 2.8 million jobs – but in comparison to April’s catastrophic loss of almost 20 million jobs:

A caution about coronavirus

But this is not ordinary in that the virus is still in control; more specifically, there will not be a confirmed rebound until people feel safe engaging in the broad economy. In that regard, it is concerning that the 7-day average of new infections in the US has risen this week:

And, in the Southeast region that entered lockdowns the latest and exited earliest, the number of new infections bottomed on April 28, and now deaths have also started to increase again:

The massive nationwide protests over the past week are also likely to seed new cases.

So, whether the above-documented rebound in the leading sectors will last is very much open to question.


The three indicators that started out May in the leading sectors of housing, cars, and manufacturing, generally, all showed rebounds, to less bad in cars and manufacturing, to outright strong demand for new purchase mortgages. Meanwhile, the shock waves continue to spread in employment, which will have further secondary effects, but the impact is ebbing somewhat. In an ordinary recession, this would suggest that we were getting close to the end. But this is subject to a very strong caution that the future course of the coronavirus pandemic is by far the decisive factor.

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