Moneybeat - Pumping oil and buying houses

MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: Here’s a bit of good news on the supply side of the American economy. 

Even though many states re-imposed COVID restrictions after seeing an increase in coronavirus cases, American factories and service businesses are expanding.

A data point from the economic firm IHS Markit is known as the Purchasing Managers Index, that PMI rose to an 18-month high, meaning manufacturing and services are expanding and no longer contracting.

Though we have to add the caveat that according to a Federal Reserve report, American industrial production year on year is still roughly 8 percent lower today than it was last summer.

Existing home sales spiked way up in July powered by the availability of very low interest mortgages, but so, too, did new claims for unemployment benefits ticking back up above the 1 million mark.

Financial analyst and advisor David Bahnsen is on the line now to talk about these numbers. David, good morning to you.

DAVID BAHNSEN, GUEST: Well, hello. Good to be with you.

EICHER: So the purchasing managers index had a nice rise—nearly to a 55 from just above 50—and the data firm points to that 18-month high. Pretty good sign, wouldn’t you say?

BAHNSEN: Yeah, let me explain a little bit for our listeners what this means: 50 is a baseline. And so they take an index of activity and anything below 50 is reflecting how much things went down from the baseline month-over-month and anything above 50 is how much it went higher. 

So, what it’s not saying is that the total amount of manufacturing activity is X percent higher than it was 18 months ago. It’s simply saying that that movement higher month-over-month is at a high. And so the problem is—that’s a very good thing. The problem is that it’s moving up month-over-month from a very low level from the months of contraction that we had in March and April, etc.

EICHER: So, in other words, it had a lot of room from which to bounce back—but we have to stress it’s better that it did bounce back than that it didn’t.

BAHNSEN: And it bounced back more than we would have expected. But it’s bouncing back from very low levels. And, Nick, you and I have talked about this quite a few weeks now, that’s sort of the trend in any of the economic data that all of it is off of very low levels and all of it is a little bit better than had been expected.

EICHER: OK. And that’s where the Fed industrial production figure I mentioned a moment ago—that overall number—tells us we’re year on year just over 8 percent down.

BAHNSEN: The issue with industrial production when things get better and where things are that are lower is the heavy disproportionate impact on industrial production from the rigs shutting down. So, you can’t shut down 70 percent of your oil rigs in the country and expect that that’s not going to have a big carry-through effect to industrial production. Inversely, though, the industrial production’s going to look pretty good when they re-engage some of those rigs, which it’s already started to do. But industrial production as a broad and democratized indicator of activity is, right now, heavily impacted by the energy sector.

EICHER: So, then when the economy gets going, there’s more demand for fuel, prices go up, it’s more economic to drill, those rigs will come back on, basically.

BAHNSEN: That’s right. And so supply can come down a lot quicker than when demand picks back up, they can’t get it back online. They can’t get supply up as quickly as they can get supply down.

EICHER: Let’s talk about the market for real-estate. I read a report that suggested people are spending so much time in their dwellings that they’re looking to upgrade. If you’re renting an apartment, you want to buy a townhouse. You’re in a condominium, you want a single-family home. You’re looking for more and better space. But 25 percent, I guess, again, a function of how low it was?

BAHNSEN: Yeah, no it’s way higher than people had expected. It’s not a huge surprise because we had been seeing the data already on new mortgage applications. New purchase mortgage apps were already going way higher. And I do think that that’s a big part of it is people relocating. There is this sort of temporary movement from urban to suburban. And then there’s definitely people that wanted to upgrade. But sometimes I am suspicious that it’s not even an upgrade. It’s just sort of a change. Like that people just sort of decide I want something different. I’ve been sheltered in place in my house for four months and now I’ve seen all the things I don’t like about it and I want to go buy a different house so I can find things that I don’t like there. So a grass is greener reality of human nature might be embedded in that data.

EICHER: There we go. Well, last week, we had a bit of a victory lap with jobless claims coming down below a million and then it goes back up: 1.1 million. But continuing claims down to 14.8 million. So that is good. 

But being on the wrong side of the 1 million new claims, what do you make of it?

BAHNSEN: Yeah, well it is a fluctuating number and I think that the continuing claims has now become the much more important number because when we dropped 600,000 from 25 million, the math, it was not nearly as significant. Now, when you’re dropping 600,000 from the 15 million range, it’s a much bigger percentage of people. 

And so it is surprising that we got down to 960,000 on the weekly jobless claims and went back up to 1.1 million, but what we know is that’s not a new 1.4 million net. It’s people that were back on payrolls and then went off. But the total net number is still going lower as far as people needing unemployment. And what it really seems intuitively clear to me is going on is restaurant workers and bar workers that were on unemployment, that got off unemployment, and then went back on unemployment. I think that unfortunately that’s the sector that has gotten tug-of-warred around here a little bit with the openings and closings and re-closings and so forth.

EICHER: Before I let you go, what’s your feel on stocks this week? A little less volatility, but an up week overall.

BAHNSEN: Well, it was actually a very low volatility week and you had pretty low day by day movement and we haven’t had a lot of those weeks. So, as far as 2020 stock market weeks go, this was a pretty low volatility one. And there’s not a lot of catalyst for major movement and then as I’ve said so many times and it continues to be true, COVID is not what is moving the market. The cases are down. Certainly all of the doom and gloom predictions about New York levels of death coming to Florida, Arizona, and Texas turned out not to be true. They did a lot of really good work to manage their hospital capacity. Hospital levels are down by 50 percent. So, I think that overall the market isn’t really looking to the headlines around COVID. It’s going to be an interesting rest of the year and I hate to say it, but I actually think that the politics is now going to be one of the bigger catalysts into market activity.

EICHER: David Bahnsen, financial analyst and advisor. Thank you, David.

BAHNSEN: Well, thanks for having me.

(AP Photo/Mary Altaffer, File) In this Jan. 3, 2020 file photo, the Wall St. street sign is framed by American flags flying outside the New York Stock Exchange in New York. 

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