Vital Statistics:
Stocks are higher this morning on no real news. Bonds and MBS are down.
The big event this week will be the jobs report on Friday. The street sees 160,000 jobs being added and the unemployment rate at 4%. Aside from the jobs report, we will get ISM data and productivity. Jerome Powell will speak on Friday.
The focus of Friday’s Personal Incomes and Outlays report was on the inflation numbers, but the lower-than-expected spending data caused the Atlanta Fed’s GDP Now Model to drastically revise down its estimate for Q1 GDP growth. The previous estimate of 2.3% growth was downgraded to a 1.5% contraction.
Hard to believe the model was predicting close to 4% growth in Q1 at the beginning of Feb and ended the month with a prediction for a 1.5% decline in GDP.
Of course the drop in spending might just be a bigger-than-normal post holiday debt payoff, and the model is reading too much into that data point. If spending is really slowing down, the Fed will want to stop tightening, which means about 75 basis points in cuts will be needed just to get to neutrality.
The Fed Funds futures now see a 25 basis point rate cut in June and and see between 50 and 75 basis points in cuts this year. With flat asking rents, shelter inflation should continue its decline, which was the big driver of inflation in the first place.
Bottom line: 2025 is looking a lot better than it was even a month ago, and I wouldn’t be surprised to see the MBS take up their origination estimates if this holds.
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