Morning Report: Job openings, and the Fed.

Vital Statistics:

Stocks are higher this morning on overseas strength. Bonds and MBS are up.

The big event this week will be the FOMC meeting on Tuesday and Wednesday. No changes are expected in interest rates, and the Street will be focused primarily on the dot plot and whether it is catching up with what the Fed Funds futures are saying. The December 2018 dot plot predicted that the end of 2019 Fed Funds rate would be in the 2.75% – 3% range, in other words two more rate hikes in 2019. A Reuters poll of economists forecasts 1 more hike this year. On the other hand, the markets are predicting a Fed Funds rate in the 2.25% – 2.5% range – in other words no change. To be fair, there has been a major change in market sentiment since December, but one of the two (the experts or the markets) has clearly got it wrong. In December, only 2 out of the 17 forecasts expected the Fed to not hike this year, and nobody was looking for a rate cut. The futures on the other hand are handicapping a 75% chance of no hike and about a 25% chance of a rate cut. This is a massive expectations gap.

Other than the FOMC meeting, there isn’t much in the way of important economic data. We will get leading economic indicators on Thursday, and existing home sales on Friday.

There were 7.58 million job openings at the end of January, which is close to the record set back in November. The 2018 data series was also revised upward, with about 353,000 additional job openings on average. The quits rate was 2.3%, which is where it has been for most of 2013 after that series was revised. The quits rate describes the number of people who are leaving their current job to get another, so it tends to lead increases in wage growth.

The housing industry is driven at least partially by new home construction, and there is a noted labor shortage in that sector. The problem is most acute in skilled trades, like electricians and plumbers, but unskilled supply is still an issue. The job opening rate for construction was 3.9% last month, as opposed to 3.3% a year ago. The quits rate edged up for the sector as well, rising to 2.5%.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical View all posts by Brent Nyitray