Morning Report: Inflation is weighing on small business

Vital Statistics:

S&P futures4,663-1.2
Oil (WTI)79.51.23
10 year government bond yield 1.77%
30 year fixed rate mortgage 3.66%

Stocks are flattish this morning as we await Jerome Powell’s testimony in front of the Senate Banking Committee. Bonds and MBS are down again.

Small business optimism ticked up in December, according to the NFIB Small Business Optimism Index. Inflation remains a problem, with a net 22% of respondents saying it was their biggest headache. A net 57% reported raising prices. Small business owners are glum about the outlook as well, with a net negative 35% of respondents seeing worse conditions ahead. A net 49% also announced they have job openings they could not fill. In addition, a net 48% reported raising compensation, which is a record for the index, which goes back almost 50 years.

Mortgage Credit Availability rose by 0.8% in November, the fifth increase in the past six months. “Credit supply increased in December, with growth across both conventional and government segments of the market,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “December’s growth was driven by more ARM and lower credit score loan programs, which was likely due to a combination of the rising rate environment and affordability challenges. Lenders expanded offerings to qualified borrowers who were the most impacted by these market conditions. Additionally, there was an increase in government streamline refinance programs to aid borrowers still looking to refinance before rates rise further.”

That said, credit is still extremely tight historically. Take a look at the chart below. We are closer to bust levels than pre-pandemic levels. I have to imagine this will get worse as the FHFA increases fees for second homes and high balance loans.

The Fannie Mae Home Purchase Sentiment Index decreased in December as home prices and interest rates rise. “The HPSI’s underlying components changed dramatically in the last 12 months – particularly the two related to homebuying and home-selling sentiment – and we have seen the index drift slightly downward since March 2021, an indication that the housing market may begin to soften in the coming year,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “Over the past year, low mortgage rates plus government stimulus programs helped increase mortgage demand, but the bidding-up of homes increased prices to record levels, making affordability a greater constraint for both first-time and move-up homebuyers. Among homeowners, the ‘good time to buy’ sentiment fell 30 percentage points over the past year to its current level of 30%; for renters it fell from 37% to 21%. Even though demand remains strong, a majority of consumers clearly have reservations about purchasing a home at current prices.”


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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