employment situation report – The Daily Tearsheet

Morning Report: Meh jobs report

Vital Statistics:

	Last	Change
S&P futures	3280	4.25
Oil (WTI)	59.52	0.04
10 year government bond yield		1.85%
30 year fixed rate mortgage		3.88%

Stocks are higher as it looks like hostilities are cooling between the US and Iran. Bonds and MBS are down.

Jobs report data dump:

Nonfarm payrolls + 145,000
Unemployment rate 3.5%
Labor force participation rate 63.2%
Average hourly earnings up 0.1% / 2.9%

Overall a meh report. Nothing special. Manufacturing payrolls fell by 12,000 which sort of meshes with the weak ISM report. Wage growth remains positive but below the sort of levels we were seeing a few months ago.

Initial Jobless Claims fell to 214,000 last week. No other economic data today, but we do have a lot of Fed-speak.

Want to give a compliance officer a heart attack? Go after a negative review on Yelp by trashing the borrower’s credit profile. Mount Diablo Lending was fined $120,000 for doing just that – “Your credit report shows 4 late payments from the Capital One account, 1 late from Comenity Bank which is Pier 1, another late from Credit First Bank, 3 late payments from an account named SanMateo. Not to mention the mortgage lates. All of these late payments are having an enormous negative impact on your credit score.” Note: credit profiles are confidential information, and your company should have procedures to protect it. Getting into a tiff with a declined borrower on Yelp is not a good way of going about that.

Remember when Quicken and United Wholesale got into a pricing war about this time last year? Well, it looks like Quicken just signed a 4 year contract with the NFL to be its exclusive mortgage sponsor. “Over the years we’ve been a brand and a company that likes to do big epic things,” Casey Hurbis, chief marketing officer for Quicken, said in an interview.

Corporate CEOs and consumers have differing views on the economy. CEOs think a recession in 2020 is the biggest risk, while almost all CFOs see the economy slowing next year. If you look at the chart below, CEO confidence is about where it was going into 2009, which quite simply makes no sense.

Morning Report: Strong jobs report

Vital Statistics:

	Last	Change
S&P futures	2701	-2.75
Eurostoxx index	358.09	-0.56
Oil (WTI)	53.82	0.02
10 year government bond yield		2.65%
30 year fixed rate mortgage		4.35%

Stocks are flattish after the jobs report. Bonds and MBS are up.

Jobs report data dump:

Nonfarm payrolls up 304,000
Labor force participation rate 63.2%
Unemployment rate 4%
Average hourly earnings up 3.2% YOY
Employment-population ratio 60.7%

Overall, an exceptionally strong report. The uptick in payrolls was almost double the market expectations, and the government shutdown had no appreciable effect (Furloughed employees were counted as “employed” by the survey. The uptick in wages probably knocked bonds down a touch, but we have been seeing real wage gains in the employment situation report and the employment cost index. Sad trombone for partisans and the business press rooting for a shutdown-depressed report.

The unemployment rate has been rising, but that is actually good news as it means more and more of the long-term unemployed are being drawn back into the labor force. The labor force participation rate is a bit of a nebulous number because people who have been unemployed for a long time may not count as unemployed. The employment-population ratio is a much better measure, although you have to deal with demographic noise. The employment-population ratio rose 0.1% to 60.7%. A year ago it was 60.2%. While that is much higher than the 58.5% we saw at the depths of the Great Recession, it is still lower than the 62% – 63% pre-crisis level. Retiring baby boomers are being replaced by Millennials, but there is a lag.

employment population ratio

New home sales rose to a seasonally-adjusted average of 657,000 in November. The new home sales number is extraordinarily volatile – it is up 17% from October, but down 8% from a year ago – but it is somewhat encouraging as we head into the spring selling season, which despite the polar vortex upon us, unofficially starts about now.

Employment compensation costs rose 0.7% in the fourth quarter, as wages and salaries rose 0.6% and benefit costs rose 0.7%. For the prior 12 months, employment compensation costs rose 2.9%, with wages and salaries rising 3.1% and benefit costs rising 2.8%. With core inflation stuck around 2%, we are seeing over 1% real wage growth, which is strong indeed.

Wapo published a story about Trump possibly naming erstwhile R politician Herman Cain to the Fed. Cue the snide jokes: Can’t wait for his 3-3-3 plan: 3% Fed funds rate, 3% interest on excess reserves, 3% of QE portfolio runoff per year. In all seriousness though, he ran the Kansas City Fed from 92-96. So what appears at first to be an applause line in fact might not be. That said, these jobs generally go to academics and he is not one.

Morning Report: Jobs data and the Fed funds futures

Vital Statistics:

	Last	Change
S&P futures	2675	-16
Eurostoxx index	374	3.73
Oil (WTI)	51.4	-0.09
10 year government bond yield		2.89%
30 year fixed rate mortgage		4.66%

Stocks are lower this morning after yesterday’s wild ride in the stock and bond markets. Bonds and MBS are flat.

Jobs report data dump:

Nonfarm payrolls + 155,000
Unemployment rate 3.7%
Labor force participation rate 62.9%
Average hourly earnings up 0.2% / 3.1%

This was generally a weaker-than-expected jobs report, with payrolls coming in below the 190,000k estimate and average hourly earnings about 1/10% below estimates. It probably won’t make that much of a difference to the Fed, but it does show the economy is moderating a bit from the torrid pace of mid-year.

The Fed Funds futures are beginning to cheat to the side of less movement from the Fed. While the December futures are still predicting a hike, the June futures are now predicting that the Fed might hike only one more time.

Nonfarm productivity rose 2.3% last quarter, while employment costs rose 0.9%. Real compensation grew at 1.1%, which is disappointing, but overall the report is decent. This report does demonstrate the issue that has been bedeviling the Fed: if we are at full employment, wages should be heading higher and the central bank should get ahead of that. However, wages are behaving as if we are not at full employment. So which numbers are telling the truth? IMO, we are not at full employment yet. While there are worker shortages in some areas, there is a glut in other areas. Also the financial crisis kicked out a lot of workers who were in their prime earnings years, and that is depressing the numbers.

Kathy Kraninger has been confirmed by the Senate to be the next head of the CFPB. She will serve a 5 year term. The vote fell along party lines, with Republicans looking for her to reform the agency’s anti-business tilt, while Democrats ululated that she won’t be tough enough on the industry. While nobody knows exactly what she has in mind, the CFPB has been going in the direction of more transparency about what the rules of the road are.

Loan Depot CEO Anthony Hsieh sent an email to his loan officers to stop whining. “I am honored to be your CEO and happy to work very hard for you. But the 42% that are unhappy being here, I do not want to work this hard for those that don’t want to be here. Adjust your attitude, be ALL-IN,” the alleged email states. “Stop acting entitled and understand this industry has ups and downs, but all will average out great. Be confident and stop whining” Definitely a different approach to motivating people.

Morning Report: Blowout jobs report

Vital Statistics:

	Last	Change
S&P futures	2752	12.25
Eurostoxx index	364.42	2.24
Oil (WTI)	63.42	-0.46
10 year government bond yield		3.18%
30 year fixed rate mortgage		4.89%

Stocks are higher this morning after a strong employment report. Bonds and MBS are down.

Jobs report data dump:

Nonfarm payrolls up 250,000
Unemployment rate 3.7%
Average hourly earnings up 3.1%
Labor force participation rate 62.9%
Employment-Population ratio 60.6%

Overall, an exceptionally strong report, with nothing to dislike. Strong wage growth, increasing labor utilization rates, low unemployment. Simply put, this is a blowout jobs report, the best we have seen in years.

The sell-off in the stock market was beginning to push the Fed Funds futures towards the dovish direction, but this report pretty much ended that. While we will get one more job report before the December FOMC meeting, it is looking like we are going to see another 25 basis points.

Productivity increased 2.2% in the third quarter, which was a deceleration from the 2.9% we saw in Q2. Unit labor costs rose 1.2%. We are seeing rising compensation costs (up 3.5%) while output is also up. Rising comp costs are much higher than the inflation rate, and while it is easy to focus solely on wages, the cost of an employee is more than just wages – it includes benefits and other regulatory costs as well.

Construction spending was flat in August and rose 7.2% YOY. Residential construction rose 0.5% MOM and 4.9% YOY. Office and lodging rose smartly on a YOY basis. Interestingly, education building is still going strong, just as the tail end of the Millennial generation is graduating. You would think colleges would figure out how to compete on price, but for the moment they are competing on amenities and infrastructure. Which is partly why college is so expensive. There is going to be a reckoning, IMO when a demographic dearth of students meets falling affordability driven by rising interest rates.

Manufacturing slowed somewhat last month according to the ISM Manufacturing Survey, however it remains robust, despite what is going on with trade. That said, many of the comments from survey participants noted that prices are rising, partially driven by tariffs. Supply lines are stretched and more firms are running at capacity. That said, the higher anecdotal capacity utilization isn’t translating into the numbers, at least not compared to historical norms:

Rising interest rates have pulled back corporate bond issuance. Corporate bond issuance is often the canary in the coal mine for the economy and therefore bears watching. Many companies tapped the markets during the ZIRP years to refinance pre-crisis debt and the fund stock buybacks, so perhaps the comparisons aren’t really all that valid. Investor appetite is waning, however that may be due to the fact that shorter duration paper is beginning to earn a return, so funds are getting defensive with the Fed in tightening mode. So far we aren’t seeing a material widening of credit spreads. Still, in the summer of 2007, a few leveraged buyouts were unable to sell the paper from M&A deals, and the buyside went on a buyer’s strike against structured products. At the time, nobody had any idea what it would turn into.

Morning Report: Surprisingly low payroll gain in September

Vital Statistics:

	Last	Change
S&P futures	2908.5	0
Eurostoxx index	377.44	-2.24
Oil (WTI)	74.56	0.25
10 year government bond yield		3.23%
30 year fixed rate mortgage		4.93%

Stocks are flat after the jobs report. Bonds and MBS are down

Jobs report data dump:

Payrolls up 134,000 (way below expectations)
Unemployment rate 3.7%
Labor force participation rate 62.7%
Average hourly earnings up 0.3% MOM / 2.8% YOY

Definitely a bond-bullish jobs report, with payrolls and average hourly earnings below expectations. The global sell-off in bonds continues, which appears to be dominating. Yet another jobs report where ADP and the BLS get completely different readings. The unemployment rate is the lowest since 1969.

While the business press is focusing on the unemployment rate, which is hitting the lowest since the late 60s, the labor force participation rate seems to be stuck at just under 63%. That ratio (and the employment-population ratio) should be moving higher. Yes demographics (the retiring baby boom) explain some of it, but as people live longer, people should be working longer as well. It probably should go higher, but in the meantime highly paid baby boomers are being replaced by lower earning Millennials, which helps explain why average hourly earnings are moving up at an unsatisfying pace.

Beware of narrative changes. Good news is now bad news. Good economic news now is a negative for stocks because it means rates are going higher. FWIW, higher rates will be negative for some sectors and benign for others. But yes, REITs and utilities which were prized for their dividend yields during the ZIRP years are now going to be under pressure. The homebuilders will be sensitive to this as well, however they shouldn’t be. There is enough pent-up demand for housing that they should be able to pump out volume for years to come. As long as rate are rising for the right reasons (stronger growth encourages investors to take more risk) and not the wrong reasons (inflation on the horizon) then it should be a non-event for stocks. That said, money market instruments, which were eschewed by investors during the ZIRP years, are going to re-take their share of the investment dollar.

Morning Report: Earnings growth accelerates

Vital Statistics:

	Last	Change
S&P futures	2870.5	-9
Eurostoxx index	372.33	-1.26
Oil (WTI)	67.74	-0.02
10 year government bond yield		2.92%
30 year fixed rate mortgage		4.57%

Stocks are lower this morning on overseas weakness. Bonds and MBS are down.

Jobs report data dump:

Payrolls up 205,000
Unemployment rate 3.9%
Average hourly earnings up 2.9%
Labor force participation rate 62.7%

The payroll number and the wages were higher than what the Street was looking for, which explains the reaction in the bond market. The labor force participation rate fell as 467,000 workers dropped out of the labor force. A big decrease was seen in the 16-19 year old category, which would mean summer jobs ending. With more and more schools starting in before Labor Day, perhaps it is time for BLS to make some re-adjustments in their seasonality calculations. In terms of sectors, professional and business services rose by the most, followed by health care. Surprisingly, construction increased going into what is a seasonally slow period and despite the jump in same store sales, retailers shed jobs. Overall, a decent report, which should keep stock investors happy and will also give bond investors something to fret about. Wage growth is getting close to a 3-handle and that will be a big number.

In response to the jobs report, the December Fed Fund futures raised their 2 hike probability to 75%.

The Trump administration continues to hammer out a trade deal with Canada and Mexico. Separately, the deadline passed for an additional 200MM in Chinese tariffs, which means he can implement them at any time.

Rep. Jeb Hensarling penned an editorial in the Wall Street Journal yesterday, where he laid out a framework for dealing with the GSEs. His solution will be to run everything through Ginnie Mae, with private capital taking the first loss position, and the taxpayer taking a catastrophic loss position. It would create a common securitization platform and still maintain some sort of affordable housing fund. Originators would have to get a private credit enhancer to guarantee the loan. The private credit enhancer would have to be market-based and have a bank-like balance sheet. Note that this is the first bipartisan housing reform bill, which means we may be getting closer to having the political will to de-nationalize the US mortgage market.

Skilled construction labor is hard to find. 83% of builders report some sort of shortage for rough carpenters. It is even worse for subcontractors. With those sorts of shortages, we should see wages accelerate. It is inevitable. The 9-occupation trade shortage is as big as it has ever been.

Morning Report: Goldilocks jobs report and the FOMC minutes

Vital Statistics:

	Last	Change
S&P futures	2740	2
Eurostoxx index	381.23	-0.36
Oil (WTI)	42.31	-0.63
10 Year Government Bond Yield		2.82%
30 Year fixed rate mortgage		4.52%

Stocks are flattish this morning as a good jobs report offsets the new tariffs that went into effect this morning. Bonds and MBS are up.

Jobs report data dump:

Payrolls up 213,000 (street was looking for 190,000)
Unemployment rate 4% (.2% increase, street was looking for 3.8%)
Labor force participation rate 62.9% (.2% increase)
Average hourly earnings +.2% MOM / 2.7% YOY (in line with expectations)

Overall, a good report – strength in payrolls, and an increase in the labor force participation rate. The labor force increased by 600k, where the number of unemployed increased 500k and the number of employed increased 100k. Of those 500k added to the ranks of the unemployed, 200k were re-entrants to the labor force. The achilles heel (at least as far as those looking for wage growth) has been the reservoir of the long-term unemployed. This will help ease some of the labor shortage, which has been a constraint on growth. It will also raise the non-inflationary growth rate for the economy overall, which is kind of like a speed limit. For the Fed, this is a bit of a Goldilocks report – it gives them the breathing room to lift rates gradually which limits the risk of a recession.

The FOMC minutes didn’t really reveal much new information. Most pointed to the strong labor market and cited several statistics (JOLTS, unemployment rate, regional Fed surveys) to point to a tight labor market. “Several” members (i.e. a minority) thought that there was still some slack in the market as the long term unemployed are re-entering the labor market. Note this morning’s jobs report bears that out. The members also discussed the slope of the yield curve, and whether the flattening was telling them anything. Interestingly, only “some” participants thought that the Fed’s asset purchase program (i.e. QE) was affecting the shape of the yield curve, and therefore distorting the information sent from it. Kind of begs the question – if QE didn’t affect the shape of the yield curve, then what was the point? Or even more importantly, why do they still have $4.5 trillion worth of bonds on the balance sheet?

The Fed also thought about the possibility of a trade war and how that would end up slowing down the economy. They also thought that they might have to raise the Fed funds rate further than they had anticipated earlier: “With regard to the medium-term outlook for monetary policy, participants generally judged that, with the economy already very strong and inflation expected to run at 2 percent on a sustained basis over the medium term, it would likely be appropriate to continue gradually raising the target range for the federal funds rate to a setting that was at or somewhat above their estimates of its longer run level by 2019 or 2020.”

The Fed Funds futures turned slightly more hawkish on the minutes, with the probability of a Sep hike increasing from 75% to 80% and the chance of a Sep and Dec hike hitting 53%.

In other economic news, the trade deficit fell to the lowest level in 18 months. Not sure how much of that is due to tariffs already in place.

Tariffs (especially lumber) are wreaking havoc on the entry-level new housing market. Builders generally have to purchase things like land and materials up front before they build and get paid for the construction. When materials prices are artificially supported by tariffs, that increases their risks, and makes them pull back.

Morning Report: Why we haven’t seen much wage growth (yet) and what the left gets wrong about labor markets

Vital Statistics:

	Last	Change
S&P futures	2743	9.7
Eurostoxx index	388.45	1.55
Oil (WTI)	65.49	-0.32
10 Year Government Bond Yield		2.91%
30 Year fixed rate mortgage		4.54%

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

We should have a relatively quiet week coming up, with not much in the way of data and no Fed-speak.

Friday’s jobs report was pretty much a Goldilocks report as far as the markets are concerned. Strong job growth, with respectable (but controlled) wage growth is exactly what the Fed wants to see. Tomorrow, we will get the JOLTS job openings report, which should show job openings of around 6.5 million.

Academics are scratching their heads trying to figure out why wage growth is so slow with unemployment below 4%. With the economy at “full employment” at least according to the unemployment numbers, how can so many jobs still be created? And if unemployment is below 4% and we are at a record number of job openings, where is the wage growth?

First of all, the jobs report had wage growth at 2.7%, and the core PCE inflation rate is 2%. So, we do have inflation-adjusted (i.e. real) wage growth. Second, productivity is a puzzle. It has been low for a decade, and part of the issue is that productivity is notoriously hard to measure, especially when valuable goods are “free” or hard to measure. Think of social media, which has all sorts of entertainment value and productivity enhancing value, yet is supposedly free. Yes, you are paying with your data, but what is your data worth? Productivity calculations need a dollar value. Productivity has been low, but there is a huge uncertainty range around that number.

I think a huge part of the issue is the fact that the unemployment rate excludes anyone who has been unemployed over 6 months, and there is a huge reservoir of workers on the sidelines who want to return to the labor force. Companies know this, and all they have to do is relax their standards (i.e. hire people who have been out of the labor force for a while) and they will fill their positions. At the end of the day, this is a numbers game. The employment-population ratio has been steadily increasing since 1970 as women have entered the workforce. It peaked in 2000, bottomed after the Great Recession, and has been steadily working its way upward. The demographic factor (retiring baby boomers) is probably getting overplayed here, as most people no longer can retire at 65 (and there really is no reason why most can’t continue to work).

Leftist economics are arguing that employers are somehow colluding to keep wages low, and therefore are suggesting a panoply of policy levers designed to artificially force up wages and increase unionization. Aside from non-competes in the rarefied air of Silicon Valley engineers, generally this doesn’t happen – cartels are almost impossible to make work (witness OPEC) and there are simply too many employers who don’t compete with each other to coordinate it, even if they wanted to.

Instead of jumping to the “market failure” conclusion, the answer is that there is more slack in the labor market than the numbers suggest. There may be a mismatch of skills, where there is high demand in areas where there aren’t a lot of available workers (skilled trades, data scientists) but overall the employment population ratio doesn’t lie. The last time we saw decent wage growth was the 90s, where the employment-population ratio was around 63%. The latest number was 60.4%. That difference in a population of 326 million is about 8.5 million jobs. That is about 3 year’s worth of job growth, without population growth which is still measurable at 0.7% a year. Even if you take into account the 6.5 million job openings, you still have probably 2 million extra workers on the sidelines. IMO, that is your answer about wage growth, not monopsony of collusion, which is just a specious argument for more government intervention in the labor markets.

Chart: Employment-population ratio.

House price appreciation continues apace, and between rising price and interest rates, the monthly house payment on the median house with 20% down has increased by $150 a month, according to Black Knight Financial Services. Income growth at 2.7% is not going to keep up with home price appreciation, which is running at around 6% a year. When rates were falling, we were able to paper over that issue with lower mortgage payments, but that game is over. Housing starts are still way too low, and that question is even more perplexing than wage growth.

Note that private equity is now building homes for rent, which should alleviate some of the supply problem. It was only a matter of time until new entrants saw the opportunity that the big builders have been sitting on. Politicians are getting sick and tired of the lack of housing supply (especially at the lower price points).

Friday’s jobs report reversed the Euro-driven drop in the June Fed Funds futures. At one point, they were predicting a 81% chance of a hike. Now it is back up to a near certainty. The December futures are predicting a 40% chance of 4 or more hikes this year and a 60% chance of 3 or less.

Morning Report: No, we are not in another housing bubble

Vital Statistics:

	Last	Change
S&P futures	2716	10
Eurostoxx index	387.8	4.74
Oil (WTI)	66.4	-0.63
10 Year Government Bond Yield		2.92%
30 Year fixed rate mortgage		4.48%

Stocks are higher after a Goldilocks employment report. Bonds and MBS are down.

Jobs report data dump:

Payrolls up 223,000 (expectation was 190,000)
Unemployment down to 3.8%
Labor force participation rate 62.7% (a drop)
Average hourly earnings up 0.3% / 2.7%

The Street was looking for wage growth of 0.2% MOM, but the annual number was in line with expectations. The wage growth print shouldn’t move the needle as far as the Fed is concerned. The employment – population ratio increased a tad as the population increased by 183k and the number of employed increased by 293k. We saw another good jump in construction jobs. Bottom line, a good report for equity markets, and a push for the bond market.

In merger news, Citizens Bank is acquiring Franklin American Mortgage. This deal should vault Citizens into a top-15 mortgage lender, bulk up its servicing portfolio and diversify its origination mix.

Italy has found a solution to its political crisis with a new coalition government that will be installed on Friday. Treasury yields should probably be higher, however tough trade talk out of the Trump Administration is keeping them lower. Even the International Steelworkers is against new tariffs, and if you can’t even get the unions on your side it says a lot…

Hard to believe it is here already, but the hurricane season is just beginning. CoreLogic estimates that 7 million homes are at risk in what NOAA expects to be a normal or above normal season. Note the National Flood Insurance program is set to expire right in the middle of the season.

Construction spending increased in April, according to the Census Bureau. Residential construction rose 4.4% MOM and 9.7% YOY.

Manufacturing accelerated in May, according to the ISM report. Employment expanded sharply. New order and production also grew.

As usual, the ISM report showed employers having difficulty finding qualified labor. Labor shortages are a theme these days, but you aren’t seeing the growth in wages you would expect. I wonder if part of the issue is application tracking systems, which seize on keywords and therefore have to be gamed somewhat. How many applicants are unaware of this or are simply bad at it? And if so, how many qualified workers are being screened out and never get presented before a set of eyes? I suspect ATS are good for companies in bad times, when there are a surfeit of applicants, but work against them when the labor pool is tighter.

An interesting editorial in the Wall Street Journal today about the credit box and the possibility of another housing bubble. The authors point to the way home prices have outstripped income growth and posits that a widening credit box (i.e. new 3% down loans from Freddie) are contributing. The authors suggest that underwriters tighten standards, and the government tighten loan parameters to prevent another foreclosure crisis when the market turns.

With regard to home price appreciation, is it due to widening credit standards, or is it due to restricted supply? In other words, is it a housing start problem or a MCAI (mortgage credit availability index) problem? The chart below is of the MBA’s Mortgage Credit Availability Index, which shows a loosening of standards since the bottom, but also demonstrates we are nowhere near the standards that existed during the bubble (and pre-bubble days).

FHA and the GSEs are stepping in on low downpayment loans because there is a complete and utter void in the private market. Prior to the crisis, FHA was a sleepy backwater of the mortgage market, targeted toward low income first time homebuyers. Afterward, its share grew because it was the only game in town. Let’s not conflate FHA mortgages with neg-am pick a pay loans of the bubble years. IMO the issue is a lack of supply (heck the appreciation is the highest in places like San Francisco, where the median price is double the limit on a FHA loan). Housing starts around 2 million for the next several years is what will be needed to cool off home price appreciation (along with the REO-to-rental types ringing the register on their portfolios).

Morning Report: Goldilocks moment with unemployment and inflation

Vital Statistics:

	Last	Change
S&P futures	2670	6.9
Eurostoxx index	388.46	1.44
Oil (WTI)	70.62	0.89
10 Year Government Bond Yield		2.94%
30 Year fixed rate mortgage		4.54%

Stocks are higher this morning as oil tops $70 a barrel. Bonds and MBS are flat.

Jobs report data dump:

Nonfarm payrolls 164,000 (lower than estimates)
Unemployment rate 3.9%
Average hourly earnings +.1% MOM / 2.6% YOY
Labor force participation rate 62.8%

This was the second month in a row where the labor force participation rate fell. The labor force fell by 236k, while the population increased by 175k. Wage inflation remains present, however it is still unlikely to drive higher inflation in the overall economy. The unemployment rate fell to the lowest since early 2000. This report takes some pressure off the bond market, and makes another run at 3% for the 10 year less likely.

The drop in the unemployment rate along with moderate wage growth is somewhat of a Goldilocks moment for the Fed. The Philps Curve is an older economic model which suggests that inflation should rise as unemployment falls, which makes sense: Unemployment falls -> workers become scarce -> wages rise -> those costs get passed on to consumers. In reality, the relationship between unemployment and inflation has been weak (R^2 = .27). The low r-squared gives away the weakness of the model – it is too simplistic, plus the unemployment rate might not be the best measure of employment strength since it ignores the long term unemployed. However, if you look at the plot below, you can see we are at a very “Goldilocks” point, which is denoted by the yellow star.

The upcoming week will have the consumer price index and the producer price index, but that should be the only market-moving data. We will have some Fed-speak as well today and Wednesday.

Donald Trump has until May 12 to renew the Iran deal. Israel calls the deal fatally flawed, while Iran says the US will regret not renewing it. West Texas Intermediate is trading over $70 on fears the deal will not be renewed.

Doctors tend to have difficulties getting a mortgage early in their careers – they usually have a high level of student loan debt, no savings and the earnings early on can be low. Mortgages that carry a higher interest rate but don’t require downpayments are becoming more popular for this market. These loans can carry an interest rate 25 -100 basis points over prevailing rates. although they usually don’t require PMI. One catch – the prepay speeds on these mortgage will almost certainly be high.

The CFPB dodged a bullet – PHH will not appeal the DC Circuit’s ruling that rejected their claim that the single-director structure is unconstitutional. There are other cases in the process that also use that claim, so it is possible the question may come to SCOTUS. If one of these cases makes it to SCOTUS, the only one with standing to defend the agency is the Administration, who probably won’t defend it.

Merger news: Mutual of Omaha is buying Synergy One. Synergy One will be a wholly-owned subsidiary and will continue to operate out of San Diego.