- Pelosi says no Saturday vote on unemployment bonus
- U.S. existing home sales expected to rebound but remain well below pre-pandemic level
- U.S. business confidence in August is expected to inch higher
Pelosi says no Saturday vote on unemployment bonus — Although Republicans and Democrats have been talking informally about a pandemic stimulus bill, there doesn’t appear to be any chance of getting a deal done in time for Saturday’s House vote. House Speaker Pelosi has called House members back to Washington on Saturday from their recess to vote on a $25 billion funding bill for the Post Office.
Ms. Pelosi has been under pressure from some members of her caucus to loosen up her demands for a stimulus bill. House Democrats are currently only willing to go as low as $2 trillion on a pandemic relief package, while Republicans are offering a maximum of $1 trillion. The main areas of contention are the size of the unemployment bonus and whether to provide any aid to state and local governments.
Ms. Pelosi late Thursday rejected the idea of having the House on Saturday vote on an unemployment bonus in addition to Post Office funding because she said it would undermine the negotiations for a larger package. Ms. Pelosi is clearly still pushing for an overall bill rather than allow the bill to be separated into pieces.
There are now only two weeks left of the Congressional recess until they return to Washington after Labor Day. The markets are still hoping that Congress in September will be able to reach a compromise stimulus bill that supports consumer income and spending and gives businesses another round of PPP funding to maintain employment levels.
As things stand right now, the unemployment bonus is gone, consumers have spent their stimulus checks, and businesses ran out of PPP money a long time ago. Meanwhile, the pandemic is still hobbling major sectors of the economy and there is no way the U.S. economy can return to normal until there is an effective and widely-available vaccine, which isn’t likely until well into 2021.
When Congress returns to Washington after Labor Day, the key item of business will be to pass a spending bill that funds the federal government when the new fiscal year starts on October 1. Without a new spending bill, there will be another government shutdown on October 1.
The general assumption is that Congress will pass a stop-gap funding bill in September that continues spending at current levels until after the November 3 election, since neither party wants to be blamed for another government shutdown just ahead of the November election.
U.S. existing home sales expected to rebound but remain well below pre-pandemic level — The market consensus is for today’s July existing home sales report to show a sharp +14.6% increase to 5.41 million, adding to June’s surge of +20.7% m/m to 4.72 million.
U.S. existing home sales plunged by a total of -32% during the 3-month period of March-May to a 9-year low of 3.91 million units in May. Home sales then rose by +20.7% in June to 4.72 million. Today’s report would have to show an increase of +22% to match the February’s pre-pandemic level of 5.76 million units.
Existing home sales have shown a partial recovery, despite the pandemic, because there has been a rash of home buying by people who need larger homes so they can work from home, or from people who are fleeing urban areas or apartment/condo living.
Home sales have also been strong because of the extremely low level of mortgage rates, which makes home purchases more affordable. The 30-year mortgage rate is currently extremely low at 2.99%, which is just 11 bp above the early-August record low of 2.88%.
Home sales would likely be even stronger if there were more homes available for sale. The supply of existing homes on the market is at only 3.8 months, which is well below the 10-year average of 5.2 months. However, there is likely to be a flood of homes coming onto the market with foreclosures next year when the current protections expire against foreclosures on federally-backed mortgages.
U.S. business confidence in August is expected to inch higher — The consensus is for today’s Markit U.S. PMI reports to show a continued improvement in U.S. business confidence. While there are still major shutdowns affecting the economy, the good news is that new Covid infection rates are falling and that no state governors want to go back to the days of a full shut-down of all non-essential businesses. The U.S. is slowly learning how to keep the pandemic down to a level that can be managed by the health care system without shutting down the entire economy.
The consensus is for today’s preliminary-Aug Markit U.S. manufacturing PMI to show a +1.1 point increase to 52.0, adding to July’s +1.1 point increase to 50.9. The preliminary Aug Markit services PMI is expected to show a +1.0 point increase to 51.0, adding to July’s +2.1 point increase to 50.0.
The market consensus is for the economy to partially recover in the second half of 2020 after the peak-to-trough plunge of -10.8% seen in the first half of 2020. However, the speed of the recovery depends heavily on whether Congress passes another stimulus bill. In the meantime, the U.S. economy is likely to sputter along until a vaccine allows the economy to return to normal. The consensus is for GDP to rebound moderately higher by +4.2% q/q (+18.0% annualized) in Q3 and +1.6% q/q (+6.5% annualized) in Q4. However, that would not be enough to fully offset the 1st-half loss and the consensus is for calendar year GDP to fall sharply by -5.9%. GDP growth in 2021 is then expected to grow by only +4.0%, which would not be enough to fully offset the 2020 loss.
