This Weeks Economic Update, October 5, 2020

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Welcome to October.  The start of the fourth quarter of 2020 will highlight a blue moon on Halloween, that figures for 2020 doesn’t it?  Some will celebrate St. Luke’s Little Summer a late season feast for the patron saint of physicians and surgeons.  That will be on October 18.  This feast is typically during a period of calm, dry fall weather, a gift from St. Luke of some golden days to enjoy before the coming arrival of Winter.  We could sure use all the respite we can get after experiencing 2020.

The September ISM Manufacturing report came in at 55.4, down slightly from the 56 in August.  Still a good report reflecting an economy that is growing.  Some concerns in the report include a slowing of the growth of new orders.  New orders moved from a strong 67.6 last month to 60.2 in September.  Still good, just not as good as August.  Production growth also slipped moving from 63.3 to 61.  A good sign was the employment index which was 46.4, up 3.2 above the August number. 

The report highlights how manufacturing continues to recover with both companies and suppliers operating in reconfigured factories, maintaining output at growing levels.  It appears that manufacturing in general is maintaining prior efficiency levels which is a great sign.  The level of client inventories continue to drop, down to what is considered critical levels.  This is a sign that October should be good for manufacturing, with increased orders on the horizon. Of the 18 manufacturing industries, 14 reported growth including paper products and wood products which were the highest performers.  The paper industry included strength in the corrugated products, a good sign of future shipping demand.  The wood products reflect the strength in the housing construction market. 

Pending home sales during August rose 8.8%.  In August the number was 5.9%.  With the lower interest rates for 30 year mortgages you would expect this increase in sales.  While this has been good news, it may be abating.  The mortgage applications in late September dropped off the table, declining almost 5% in the final weeks of last month, in spite of a continued decrease in mortgage rates.  Housing prices continue to inflate based on the high demand, and yes, the lower mortgage rates.  Many are getting priced out of the market by the higher prices. 

The housing market may be soon impacted by the forbearance agreements in the CARES Act.  This past week the number of mortgages in forbearance rose by 21,000.  Right now 6.8% of all active mortgages are in the forbearance program.  During the Great Recession, the delinquency rate on owner occupied properties reached 10.6% at the peak.  The current delinquency rate for owner occupied mortgages is 6.9%.  If the CARES Act had not provided relief you could assume that the amount under forbearance would be added to this number producing a 13.7% delinquency rate.  While the housing market was decimated during the Great Recession, the market is much different now.  In the Great Recession there were many more subprime mortgages with little or no equity.  There was no market of demand like there is now.  Most owners have equity now where they did not 12 years ago.  This allows them to sell and in many cases get more than list price.  The rub comes in finding either an affordable rental or an affordable replacement which is proving difficult.

For those of you who love Baseball, enjoy the rather odd post season.  The Minnesota Twins decided to beat themselves with just the slightest assistance from the Astros.  On to College Football.  Oh wait, Oklahoma is 1 win and 2 losses, would you expect any less from 2020?



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