Morning Report: Goldman sees the unemployment rate falling to 3.25% this year

Vital Statistics:

 

Last Change
S&P futures 3362 9.25
Oil (WTI) 50.51 0.72
10 year government bond yield 1.58%
30 year fixed rate mortgage 3.66%

 

Stocks are higher this morning as China begins to restart industrial production. Bonds and MBS are down.

 

Jerome Powell goes to the Hill today for his semi-annual Humphrey Hawkins testimony. The Fed is closely monitoring the Coronavirus issue with respect to global growth. With this being an election year, the questioning will probably be more focused on political posturing (what would you do about income inequality? what would you do about affordable housing?) than anything else. I doubt there will be anything market-moving in the testimony, but you never know.

 

Small Business started the year off strong, according to the NFIB Small Business Optimism Index. “2020 is off to an explosive start for the small business economy, with owners expecting increased sales, earnings, and higher wages for employees,” said NFIB Chief Economist William Dunkelberg. “Small businesses continue to build on the solid foundation of supportive federal tax policies and a deregulatory environment that allows owners to put an increased focus on operating and growing their businesses.” Labor continues to be an issue: “Finding qualified labor continues to eclipse taxes or regulations as a top business problem. Small business owners will likely continue offering improved compensation to attract and retain qualified workers in this highly competitive labor market,” Dunkelberg concluded. “Compensation levels will hold firm unless the economy weakens substantially as owners do not want to lose the workers that they already have.”

 

Speaking of the labor market, Goldman Sachs Chief Economist Jan Hatzius sees the unemployment rate falling to 3.25% this year. That would be the lowest since 1953. But first, the Boeing and Coronavirus issues need to recede into the rear-view mirror.

 

The Trump Administration released its 2021 budget, which cut social programs and increased defense spending. Some housing related programs were hit, such as the Housing Trust Fund and the Capital Magnet Fund, which are funded by a 4 basis point charge on Fannie and Freddie origination. The Community Development Block Grants would be eliminated. As a general rule, these proposed budgets are not meant to become law (one of Obama’s budgets received exactly zero votes) – but are more statements of priorities. It also cuts Medicare and Medicaid, which means it would get no support from Democrats.

 

 

Morning Report: Housing starts disappoint

Vital Statistics:

 

Last Change
S&P futures 2791.5 -5
Eurostoxx index 371.78 -0.4
Oil (WTI) 55.5 0.03
10 year government bond yield 2.66%
30 year fixed rate mortgage 4.35%

 

Stocks are lower this morning on overseas tensions between India and Pakistan. Bonds and MBS are flat.

 

Jerome Powell heads to Capitol Hill today for his first day of Humphrey-Hawkins testimony. While this events are ostensibly to allow Congress to question the Fed about monetary policy, they are really nothing more than a posturing exercise for politicians to hop on their respective ideological hobby-horses. Expect Democrats to focus like a laser on income inequality, too big to fail banks, and fair lending. Expect Republicans to focus on inflation worries, banking regulation, and the return of the bond vigilantes. The markets will be listening for information on balance sheet reduction and further hikes this year. This probably won’t be market-moving.

 

Housing starts fell to a seasonally-adjusted annual rate of 1.08 million, a double-digit percentage drop on both a month-over-month and annual basis. As a general rule, winter housing starts numbers can be volatile due to the weather, however this is simply an awful number. The street was looking for 1.25 million, which is still a depressed number. Remember, between 1959 and 2002, we averaged 1.5 million housing starts a year. The last time we saw that sort of building was 2006.

 

housing starts

 

The Home Despot reported fourth quarter earnings this morning, and forecasted weaker-than-expected comparable sales. Part of this is a technical aspect of their accounting conventions, but it does speak to weakness in home improvement spending.

 

Economic activity slowed in January, according to the Chicago Fed National Activity Index. Production-related indicators drove the decline. How much of this was temporary due to tariff issues / government shutdown remain to be seen. Employment remained positive.

 

More sellers are cutting prices this winter in order to move their homes, according to Redfin. 21% of home sellers are reporting a price decrease, which is a post-crisis high. “Many sellers listed their homes late last year just as rising prices and mortgage rates were starting to price out their core pool of potential buyers,” said Las Vegas Redfin agent Jennifer Brockman. “Meanwhile, some buyers are starting to think that waiting to purchase a home could pay off, especially as listing inventory continues to rise. In this new market reality, buyers may have negotiating power now that they won’t have in the spring and summer.”

 

redfin price drop