labor – The Daily Tearsheet

Morning Report: Brookings frets about non-bank origination market share

Vital Statistics:

	Last	Change
S&P futures	3074	4.25
Oil (WTI)	56.97	-0.24
10 year government bond yield		1.83%
30 year fixed rate mortgage		3.97%

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

Mortgage Applications fell 0.1% last week as purchases decreased 3% and refis increased 2%. “U.S. Treasury yields once again exhibited some intraweek volatility before declining sharply toward the end of the week,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “As a result, mortgage rates decreased, with the 30-year fixed rate falling below 4 percent again. In response to the lower rates, refinance applications climbed 2 percent, as homeowners with larger loan balances helped to keep the average refinance loan size elevated. Purchase applications fell slightly last week but remained almost 7 percent higher than a year ago.”

Job openings ticked down in September, according to the JOLTS survey. The quits rate fell to 2.3%, although it was lowest (1.7%) in the Northeast. The rest of the country was in the mid-2s. The Fed keeps a close eye on the quits rate as often presages an increase in wage growth. Construction job openings remain elevated, as does the quits rate for the sector.

The ISM non-manufacturing survey came in much better than expectations. Business is “brisk” and a shortgage of workers remains one of the biggest headaches. Whatever late-summer fears about an impending recession or business slowdown appear to have abated.

Productivity fell in the third quarter, according to BLS, as output increased 2.1% and hours worked increased 2.4%. Unit labor costs rose 3.3%, reflecting a 3.6% increase in compensation and the 0.3% drop in productivity. Manufacturing has been a weak spot, as decreasing demand has lowered output.

PennyMac has filed an antitrust lawsuit against Black Knight alleging that “Black Knight uses its market-dominating LoanSphere® MSP mortgage loan servicing system to engage in unfair business tactics that both entrap its licensees and create barriers to entry that stifle competition.” Basically Pennymac developed their own servicing infrastructure and Black Knight is suing them. Separately, Black Knight reported better than expected earnings this morning.

The government is getting worried about shadow banks (read independent mortgage bankers) and their market share in the mortgage origination business. Independent mortgage banks were the subject of a Brookings paper which points out they are vulnerable to financial shocks given that they rely on short-term funding in the money markets to fund their business. Note this isn’t only an origination issue – it is a servicing issue and the revolves around advances. For FHA and VA servicing these advances can spin out of control. This is probably what is behind the government’s recent moves to curb the use of the False Claims Act, which basically drove the big banks out of the FHA / VA business. Nonbanks currently originate 90% of all GNMA loans.

Morning Report: Goldilocks jobs report

Vital Statistics:

	Last	Change
S&P futures	2891	6.75
Eurostoxx index	387.8	-1
Oil (WTI)	62.72	0.26
10 year government bond yield		2.54%
30 year fixed rate mortgage		4.20%

Stocks are higher this morning after the payroll number. Bonds and MBS are down small.

Jobs report data dump:

Nonfarm payrolls up 196,000 (expectation 180,000)
Average hourly earnings up 0.1% MOM / 3.2% YOY (expectation 0.3% / 3.4%)
Labor force particpation rate 63%
Unemployment rate 3.8%

Overall, it was a bit of a Goldilocks jobs report: enough strength to quell fears of a slowdown, but tame enough wage growth to keep the Fed from tightening more. January and February’s payroll numbers were revised upward by 14,000.

Trump will nominate Herman Cain for the Federal Reserve Board. While many find the idea of nominating a pizza chain executive strange, he did run the Kansas City Fed so he does have monetary policy experience. Certainly with Steve Moore and Herman Cain, there will be a different voice from the predominantly academic / salt water view on things.

The Senate confirmed Mark Calabria to run FHFA.

Morning Report: Lowest initial jobless claims since the 1960s.

Vital Statistics:

	Last	Change
S&P futures	2878	-0.75
Eurostoxx index	387.8	-1
Oil (WTI)	62.72	0.26
10 year government bond yield		2.50%
30 year fixed rate mortgage		4.20%

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

Mortgage Applications increased 18.6% last week as rates fell. The purchase index rose 3% while the refi index rose 39%. The refi share increased to 47% of total applications. “There was a tremendous surge in overall applications activity, as mortgage rates fell for the fourth week in a row – with rates for some loan types reaching their lowest levels since January 2018. Refinance borrowers with larger loan balances continue to benefit, as we saw another sizeable increase in the average refinance loan size to $438,900 – a new survey record,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “We had expected factors such as the ongoing strong job market and favorable demographics to help lift purchase activity this year, and the further decline in rates is providing another tailwind. Purchase applications were almost 10 percent higher than a year ago.” Separately, Black Knight said that last week’s drop in rates increased the refinanceable mortgage pool by 50%.

The ISM non-manufacturing index slipped in March, although it is still quite strong. One of the comments from the report mentioned residential construction: “While we have a slowed down in residential service and install [area], we are still experiencing strength in the new commercial construction area.” (Construction) Another: “April is when our real busy season begins and it has arrived early this year, demand is quite strong.” (Real Estate, Rental & Leasing). Others mentioned that the labor market remains tight“Labor is tight and in short supply.” (Accommodation & Food Services)

Initial Jobless Claims fell to 202,000 last week, so despite the weak ADP print, the labor market still looks strong. For those keeping score at home, this was the lowest print in 50 years. To put that in perspective, the last time we had that few initial jobless claims, the population was 33% lower and we had a military draft.

Home prices are falling in the markets that led the way off the bottom. MSAs like the Bay Area, Nashville, Austin, and Florida are experiencing declines as listings surge. On the other hand, the lagging markets are finally having their day. Unloved markets like Milwaukee WI and Rochester NY are experiencing double digit increases.

Morning Report: Surprising payroll number

Vital Statistics:

	Last	Change
S&P futures	2729.75	-20
Eurostoxx index	370.51	-3.3
Oil (WTI)	55.07	-1.53
10 year government bond yield		2.63%
30 year fixed rate mortgage		4.35%

Stocks are lower this morning after Chinese stocks fell 4.4% overnight. Bonds and MBS are up.

Jobs report data dump:

Payrolls up 20,000 (huge miss – Street was looking for 180k)
Unemployment rate 3.8%
Labor force participation rate 63.2%
Employment-Population Ratio 60.7%
Average hourly earnings up 3.4%

Surprisingly poor payroll number, and a bit of a suprise given the ADP number and all of the other numbers, which indicate strength. I suspect this will get revised upward next month. The average hourly earnings number is the highest in a decade, and probably is a better indicator of the health of the labor market than the payroll number. Still, the first indication of a labor slowdown will be a drop in hiring, so it bears watching.

Housing starts rose 1.23 million in January, which was a touch higher than the Street estimate. Building Permits rose 1.35 million, slightly above the 1.29 million estimate. January housing numbers are typically the nadir of the seasonal slowdown, so it is hard to read too much into them.

Labor productivity rose 1.9% in the fourth quarter as output increased 3.1% and hours worked increased 1.2%. Productivity is what allows non-inflationary growth and is the biggest input into higher standards of living. Unit Labor costs rose 2%.

Initial Jobless Claims fell to 223,000.

House Democrats have introduced legislation to prevent any sort of reform of the CFPB. Their big objection is the fact that Mick Mulvaney ended regulation by enforcement action, which was the practice of promulgating intentionally vague rules and then fining companies for violating them without saying what the rules exactly are. Since the government has unlimited resources and most companies don’t, they choose just to pay whatever the agency asks. Mulvaney also required the agency’s lawyers to conduct cost-benefit analyses for proposed regulations, which they also dislike. The bill has zero Republican sponsors, will go nowhere in the Senate, and is really nothing more than a messaging exercise.

Rising home prices means rising home equity. In the fourth quarter, homeowners saw their equity increase by 8.1%, or $678 billion, according to CoreLogic. The number of homes with negative equity rose to 2.2 million units, however the amount of the negative equity also fell. Louisiana, Connecticut, and Illinois have the highest percentage of homes with negative equity, while Washington, Oregon, and Utah have the smallest.