The Daily Tearsheet

Vital Statistics:

Stocks are flattish this morning on no real news. Bonds and MBS are down small.

The services PMI declined in January, according to the Institute for Supply Management. The index declined from 54% to 52.8% on weaker activity and orders, however it remains in expansion territory, where it has been for nearly the past 5 years.

While activity declined somewhat, there were two bright spots. Employment increased by 1% and prices declined by 4%. Tariffs remain a worry. “January was the second month in a row with all four subindexes that directly factor into the Services PMI^® — Business Activity, New Orders, Employment and Supplier Deliveries — in expansion territory. Slower growth in the Business Activity and New Orders indexes led to the lower composite index reading. Poor weather conditions were highlighted by many respondents as impacting business levels and production. Like last month, many panelists also mentioned preparations or concerns related to potential U.S. government tariff actions; however, there was little mention of current business impacts as a result.”

Announced job cuts increased 28% to 49,795 in January, according to the Challenger and Gray Job Cut Report. While this is an increase from December, there is a big seasonal element, and it is a decrease of 40% compared to January of 2024. Hiring plans increased.

Productivity declined in the fourth quarter to 1.2% compared to 2.3% in the third quarter. Unit labor costs increased from 0.5% to 3.0%. This might have explained why inflation reappeared in Q4. Output increased 2.3% and hours worked increased 1%.

Productivity is a big driver of non-inflationary growth, and it has been trending down for the past couple of years. Note that productivity collapsed in 2022, right about the time inflation was peaking

Vital Statistics:

Stocks are lower this morning on no real news. Bonds and MBS are up.

There were 7.6 million job openings at the end of December, according to the BLS. This was a decrease of 560k compared to November and a drop of 1.3 million compared to last year. The decrease was mainly in professional / business services (-225k), health care / social assistance (-180k) and finance / insurance (-136k).

The quits rate was flat at 2.0%. A year ago, it was 2.2%. A falling quits rate is a signal of labor market deterioration.

Construction job openings were 217k, about a 50k drop from the month before. Construction openings have been on a steady decline and are back to pre-pandemic levels:

The private sector added 183,000 jobs in January, according to the ADP Employment Survey. “We had a strong start to 2025 but it masked a dichotomy in the labor market,” said Nela Richardson, chief economist, ADP. “Consumer facing industries drove hiring, while job growth was weaker in business services and production.”

The Street was looking for a 153k increase, so the 183 number was better than expectations. Friday’s employment situation report sees about 140k in private payroll additions.

Mortgage applications rose 2.2% last week as rates fell. “Mortgage rates moved lower last week, consistent with lower Treasury yields following the FOMC meeting and a volatile week for stock market. The 30-year fixed rate declined to its lowest level in six weeks at 6.97 percent,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Mortgage applications responded to these lower rates and were up for the week overall, driven by a 12 percent increase in refinance applications, which had their strongest week since December 2024.”

Added Kan, “Purchase activity had a tougher week, with declines across all loan types. The average loan size for a purchase loan has increased since the start of the year and continued that trend last week with weaker government purchase activity, which reached $447,300, the highest level since October 2024.” 

Are you a mortgage originator with a bookkeeper, but no financial analyst? Are you doing without an annual budget because you don’t have the time / resources to develop one? Are you considering an acquisition, and want an in-depth analysis of the potential synergies and impact on the bottom line? Perhaps you have some projects that need to be done, but you can’t justify a full-time hire.

I am a consultant who has extensive experience in capital markets, secondary marketing, FP&A, budgeting, and servicing. If you think you might have a need, let’s set up a discovery call. 

Please reach out to brent@thedailytearsheet.com

Vital Statistics:

Stocks are flattish this morning after the Trump Administration delayed tariffs on Mexico and Canada for 30 days. Bonds and MBS are down.

The tariffs on Mexico and Canada have been delayed 30 days after both countries made some concessions. Meanwhile, China has apparently instituted some tariffs on the US. Given that China is in the midst of a burst real estate bubble, this probably just increases the price of stuff they aren’t buying in the first place.

Stocks sold off in early trading on Monday, and the 10 year bond yield pushed down towards 4.5%. After Mexico’s tariffs were delayed by 30 days, markets recovered most of the losses, with only tech stocks down substantially.

Trump fired CFPB head Rohit Chopra and appointed Treasury Secretary Scott Bessent as Interim Head. Bessent’s first action was to suspend everything the CFPB is doing. The agency will suspend the effective dates for all rules that have yet to go into effect, pause all litigation (they are only allowed to file for continuances) and stop rule-making. They also were told to cease public comment.

Manufacturing activity increased in January after 26 straight months of contraction, according to the ISM Manufacturing Survey. New orders, production and employment all increased markedly. “Demand and production improved; and employment expanded. However, staff reductions continued with many companies, but at weaker rates. Prices growth was moderate, indicating that further growth will put additional pressure on prices. As predicted, maintaining a slower rate of price increases as demand returns will be a major challenge for 2025. Forty-three percent of manufacturing gross domestic product (GDP) contracted in January, down from 52 percent in December. The share of manufacturing sector GDP registering a composite PMI^® calculation at or below 45 percent (a good barometer of overall manufacturing weakness) was 8 percent in January, a dramatic 41-percentage point improvement compared to the 49 percent reported in December.”

Susan Collins and Ralph Bostic said the Fed is in wait and see mode, and any further rate cuts might not be coming for a while. “In my view … it’s really appropriate for policy to be patient, careful and there’s no urgency for making additional adjustments, especially given all of the uncertainty,” said Boston Fed President Susan Collins in an interview with CNBC. “Depending on what the data are, it might mean we are waiting for awhile,” [Atlanta Fed President] Bostic said.

I am accepting ads for this blog if you would like to make an announcement, highlight something your company is offering or want more visibility. I am running a special for new clients as well. I offer white-label services which give you the ability to use this content for your own daily emails. The blog has thousands of subscribers / followers and an open rate around 50%. Please feel free to reach out to brent@thedailytearsheet.com if you would like to discuss this further

Vital Statistics:

Stocks are lower this morning on news that tariffs will be instituted on China, Canada and Mexico this week. Bonds and MBS are up.

The week ahead will be dominated by the jobs report on Friday. We will also get ISM data and a lot of Fed speakers.

The tariff issue has the potential to re-ignite inflation, however the US is in a better position in a trade war than the other countries. International trade balances are a bigger part of Mexico, China, and Canada’s GDP than they are here. I still think this is just a negotiating posture and it won’t last long.

One thing to keep in mind is that the US dollar has appreciated against the Peso and the Loony over the past year. The peso has depreciated 19% over the past year, which will blunt some of the impact on consumers.

Michelle Bowman spoke Friday and assessed the state of monetary policy:

Given the current stance of policy, I continue to be concerned that easier financial conditions over the past year may have contributed to the lack of further progress on slowing inflation. In light of the ongoing strength in the economy and with equity prices substantially higher than a year ago, it seems unlikely that the overall level of interest rates and borrowing costs are exerting meaningful restraint.

I am also closely watching the increase in longer-term Treasury yields since we started the recalibration of our policy stance at the September meeting. Some have interpreted it as a reflection of investors’ concerns about the possibility of tighter-than-expected policy that may be required to address inflationary pressures. In light of these considerations, I continue to prefer a cautious and gradual approach to adjusting policy.

There is still more work to be done to bring inflation closer to our 2 percent goal. I would like to see progress in lowering inflation resume before we make further adjustments to the target range. We need to keep inflation in focus while the labor market appears to be in balance and the unemployment rate continues to be at historically low levels. By the time of our March meeting, we will have received two inflation and two employment reports. I look forward to reviewing the first quarter inflation data, which, as I noted earlier, will be key to understanding the path of inflation going forward. I do expect that inflation will begin to decline again and that by year-end it will be lower than where it now stands.

Donald Trump fired the head of the CFPB Rohit Chopra and will appoint a new leader. For the moment, the #2 will take over as interim director until Trump appoints a new leader.

Are you a mortgage originator with a bookkeeper, but no financial analyst? Are you doing without an annual budget because you don’t have the time / resources to develop one? Are you considering an acquisition, and want an in-depth analysis of the potential synergies and impact on the bottom line? Perhaps you have some projects that need to be done, but you can’t justify a full-time hire.

I am a consultant who has extensive experience in capital markets, secondary marketing, FP&A, budgeting, and servicing. If you think you might have a need, let’s set up a discovery call. 

Please reach out to brent@thedailytearsheet.com

Vital Statistics:

Stocks are higher this morning after good numbers out of Apple. Bonds and MBS are down small.

Personal Incomes rose 0.4% in December, in line with expectations. Personal Spending rose 0.7%, which was higher than expectations. Higher spending was driven by energy, transportation and shelter.

The all-important PCE Price Index rose 0.3% MOM and 2.6% YOY. The core rate rose 0.2% MOM and 2.8% YOY. All of the inflation numbers were in line with expectations.

The gradual increase we saw in core PCE last fall seems to be over. Meanwhile, the headline rate has been rising due to higher energy costs.

The bond market took the number in stride, with little movement in the aftermath.

Pending Home Sales fell 5.5% in December, according to NAR. “After four straight months of gains in contract signings, one step back is not welcome news, but it is not entirely surprising,” said NAR Chief Economist Lawrence Yun. “Economic data never moves in a straight line. High mortgage rates have not significantly dented housing demand due to greater numbers of cash transactions.”

“Contract activity fell more sharply in the high-priced regions of the Northeast and West, where elevated mortgage rates have appreciably cut affordability,” said Yun. “Job gains tend to have greater impact in more affordable regions. It is unclear if heavier-than-usual winter precipitation impacted the timing of purchases.”

Fed Governor Michelle Bowman said that progress on inflation was “noticeably” slower than 2023 which warranted a more cautious approach to interest rates. The increase in long-term rates since the Fed started cutting was a “reflection of investors’ concerns about the possibility of tighter-than-expected policy that may be required to address inflationary pressures.”

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Vital Statistics:

Stocks are up this morning after good numbers out of Tesla and Meta. Bonds and MBS are up. Note the European Central Bank cut rates this morning, which is affecting things as well.

As expected, the Fed maintained interest rates at current levels. The business press is framing the decision as a “pause” and a “wait-and-see” change. I am not sure the language in the FOMC statement necessarily says that – the changes between December and January were minor – but the media seems to be singing from the same sheet of music.

Bonds initially sold off on the decision, but yields ended up working their way lower throughout the rest of the day. The press conference was uneventful and Jerome Powell said that further progress on inflation / deterioration in the labor market would be necessary to keep cutting rates.

The Fed Funds futures moved slightly more dovish, with the March futures seeing a 18% chance of a rate cut, and the December futures seeing 2 cuts this year as the most likely scenario.

Fourth quarter GDP slowed to a seasonally adjusted annual rate of 2.3%, which was below Street expectations of 2.6%. Strong consumption was offset by declining investment.

Are you a mortgage originator with a bookkeeper, but no financial analyst? Are you doing without an annual budget because you don’t have the time / resources to develop one? Are you considering an acquisition, and want an in-depth analysis of the potential synergies and impact on the bottom line? Perhaps you have some projects that need to be done, but you can’t justify a full-time hire.

I am a consultant who has extensive experience in capital markets, secondary marketing, FP&A, budgeting, and servicing. If you think you might have a need, let’s set up a discovery call. 

Please reach out to brent@thedailytearsheet.com

Vital Statistics:

Stocks are flattish as we await the Fed decision at 2:00 pm. Bonds and MBS are up.

The FOMC decision is set for 2:00 pm. The markets will be looking for acknowledgement that the pause in inflationary progress in late 2024 was just a blip.

Consumer confidence fell in January, according to the Conference Board. “Consumer confidence has been moving sideways in a relatively stable, narrow range since 2022. January was no exception. The Index weakened for a second straight month, but still remained in that range, even if in the lower part,” said Dana M. Peterson, Chief Economist at The Conference Board. “All five components of the Index deteriorated but consumers’ assessments of the present situation experienced the largest decline. Notably, views of current labor market conditions fell for the first time since September, while assessments of business conditions weakened for the second month in a row. Meanwhile, consumers were also less optimistic about future business conditions and, to a lesser extent, income. The return of pessimism about future employment prospects seen in December was confirmed in January.”

Inflation expectations over the next 12 months rose from 5.1% to 5.3%, which is something that will concern the Fed. Note also that respondents’ view of the labor market is deteriorating, with more people thinking jobs are hard to get and less people thinking jobs are plentiful.

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Mortgage Applications fell 2% last week as purchases fell 0.4% and refis fell 6.8%. “Purchase activity decreased slightly, but applications for FHA purchase loans were a bright spot, increasing by 2 percent,” said Joel Kan, vice president and deputy chief economist at the MBA. 

“New and existing-home sales ended 2024 on a strong note, and if mortgage rates continue to stabilize and for-sale inventory loosens, we expect a gradual pick up in purchase activity in the coming months.”

The Spring Selling Season, which unofficially starts around Super Bowl Sunday is nearly upon us.

Vital Statistics:

Stocks are higher this morning after yesterday’s sell-off. Bonds and MBS are down.

The FOMC meeting begins today, with the announcement slated for 2:00 pm tomorrow. No changes in monetary policy are expected, although the language in the statement about risks to the economy will matter.

New Home Sales rose 3.6% MOM and 6.7% YOY to a seasonally adjusted annual rate of 698,000 units. For the full year 2024, new home sales rose 2.5% to 683,000. The median new home price rose 2% to $427,000.

Durable goods orders fell 2.2% in December, which was worse than expectations. If you strip out transportation durable goods orders rose 0.3%, which again was a miss. Core capital goods (a proxy for business capital investment) increased 0.5%, above expectations.

Home prices rose 3.8% in November, according to the Case-Shiller Home Price Index. “With the exception of pockets of above-trend performance, national home prices are trending below historical averages,” says Brian D. Luke, CFA, Head of Commodities, Real & Digital Assets. “Markets in New York, Washington, D.C., and Chicago are well above norms, with New York leading the way. Unsurprisingly, the Northeast was the fastest growing region, averaging a 6.1% annual gain. However, markets out west and in once red-hot Florida are trending well below average growth. Tampa’s decline is the first annual drop for any market in over a year. Returns for the Tampa market and entire Southern region rank in the bottom quartile of historical annual gains, with data going back to 1988.

“Despite below-trend growth, our National Index hit its 18th consecutive all time high on a seasonally adjusted basis,” Luke continued. “Again, with the exception of Tampa, all markets rose monthly with seasonal adjustment. With New York leading the nation for the seventh consecutive month and U.S. banks reporting strong Q4 earnings, this could set the Big Apple up as we close out the year.

If national home price appreciation is indeed trending below historical averages, and rental appreciation is flatlining that should be the final nail in the coffin of outsized shelter inflation which has been driving overall inflation higher. Good news for those hoping for lower rates going forward.

The FHFA House Price Index reported that home prices rose 0.3% MOM and 4.2% YOY in November. “Annual house price gains continued to moderate in November, with all nine Census divisions showing slower pace of growth than a year ago.” said Dr. Anju Vajja, Deputy Director for FHFA’s Division of Research and Statistics. “The slowdown in price growth is likely due to higher mortgage
rates contributing to cooling demand.”

The decline in home price appreciation is evident in every region:

Definitely food for though as the Fed begins its meeting today.

Are you a mortgage originator with a bookkeeper, but no financial analyst? Are you doing without an annual budget because you don’t have the time / resources to develop one? Are you considering an acquisition, and want an in-depth analysis of the potential synergies and impact on the bottom line? Perhaps you have some projects that need to be done, but you can’t justify a full-time hire.

I am a consultant who has extensive experience in capital markets, secondary marketing, FP&A, budgeting, and servicing. If you think you might have a need, let’s set up a discovery call. 

Please reach out to brent@thedailytearsheet.com

Vital Statistics:

Stocks are lower this morning on news that a Chinese AI upstart Deepseek could upend the AI market. Bonds and MBS are up on the risk-off trade.

The news on Deepseek is crushing the Nasdaq 100 index this morning, particularly the AI darlings like Nvidia. The Nasdaq futures are down 4% in premarket trading. The Chinese AI startup is supposedly outperforming other AI offerings, and which is rattling tech stocks, especially the ones that have led the market up over the past year or two. The bond market is benefiting from the panic, with the 10 year pushing towards 4.5%.

“Deepseek R1 is one of the most amazing and impressive breakthroughs I’ve ever seen,” said Marc Andreessen, the Silicon Valley venture capitalist who has been advising President Trump, in an X post on Friday.

The week ahead will be dominated by earnings (especially Microsoft and Meta), along with the January FOMC meeting and the PCE Price Index on Friday. We will also get home prices and new home sales.

The Fed Funds futures see no changes to interest rates at this week’s FOMC meeting. They have begun to lean towards more cuts this year, with the probability of two or more cuts at 74%. This number was closer to 50% last week.

The equity risk premium (or the incremental return equity investors require to invest in stocks) is currently about zero, which means that stocks are wildly overvalued compared to bonds. The last time it was this low was in early 2021, as the tech bubble was unwinding.

If we see a an unwinding of this phenomenon (and this morning may be step 1), bonds might be in vogue again. Good news for mortgage originators, that is for sure. Not so much for servicers, though.

I am accepting ads for this blog if you would like to make an announcement, highlight something your company is offering or want more visibility. I am running a special for new clients as well. I offer white-label services which give you the ability to use this content for your own daily emails. The blog has thousands of subscribers / followers and an open rate around 50%. Please feel free to reach out to brent@thedailytearsheet.com if you would like to discuss this further

Vital Statistics:

Stocks are flattish this morning on no real news. Bonds and MBS are flat.

Donald Trump demanded that the Fed cut rates: “I’ll demand that interest rates drop immediately,” Trump said. “And likewise, they should be dropping all over the world. Interest rates should follow us all over.” Don’t forget that we saw this movie before in his first term in 2019, before the Fed started cutting rates as GDP was falling.

Monetary policy is still quite tight, with the Fed Funds rate at least 100 basis points above the neutral rate. It is looking like the pause in disinflation last year might have been a blip, and the path is back downward.

Ultimately the main problem with inflation is shelter, which is easing as a glut of apartments hit the market. If the Fed cuts rates further, will we see an acceleration in home price appreciation? I don’t see it, given that we are bumping up against affordability constraints.

Existing home sales rose 2.2% in December, according to the National Association of Realtors. This was the strongest pace since February of 2024. The median home price rose 6% YOY to $404,400. This was primarily due to outperformance at the top end. “Home sales in the final months of the year showed solid recovery despite elevated mortgage rates,” said NAR Chief Economist Lawrence Yun. “Home sales during the winter are typically softer than the spring and summer, but momentum is rising with sales climbing year-over-year for three straight months. Consumers clearly understand the long-term benefits of homeownership. Job and wage gains, along with increased inventory, are positively impacting the market.”

The first time homebuyer accounted for 31% of all home sales, up from 30% in November. FWIW, the Spring selling season is just around the corner and this report is encouraging.

Consumer sentiment declined in January, according to the University of Michigan Consumer Sentiment Survey. “Consumer sentiment fell for the first time in six months, edging down 4% from December. While assessments of personal finances inched up for the fifth consecutive month, all other index components pulled back. Indeed, sentiment declines were broad based and seen across incomes, wealth, and age groups. Buying conditions for durables softened but remained about 30% better than six months ago amid persistent views that purchasing now would avoid future price increases. Despite reporting stronger incomes this month, concerns about unemployment rose; about 47% of consumers expect unemployment to rise in the year ahead, the highest since the pandemic recession. January’s data closed on Inauguration Day, and consumers of all political leanings will continue to refine their views as Trump’s policies are clarified and implemented.”

Unfortunately, inflationary expectations increased, with the short term (one year) rising from 2.8% to 3.3%. Longer-run inflationary expectations also increased from 3% to 3.2%.

Are you a mortgage originator with a bookkeeper, but no financial analyst? Are you doing without an annual budget because you don’t have the time / resources to develop one? Are you considering an acquisition, and want an in-depth analysis of the potential synergies and impact on the bottom line? Perhaps you have some projects that need to be done, but you can’t justify a full-time hire.

I am a consultant who has extensive experience in capital markets, secondary marketing, FP&A, budgeting, and servicing. If you think you might have a need, let’s set up a discovery call. 

Please reach out to brent@thedailytearsheet.com