Morning Report – Small Business Optimism still has a ways to go 8/12/14

Markets are lower this morning on no real news. Bonds and MBS are flat

Job openings increased slightly to 4.7 million in June, up about 100k from the May number. The hires rate was 3.5%, and the separations rate was 3.3%. Quits were 1.8% and layoffs were 1.2%. The best industries for hiring: manufacturing, leisure and hospitality, and professional / business services. Construction was actually down a little over the year. FWIW, the home builders have all been lamenting the lack of skilled labor.

The NFIB Small Business Optimism Index slipped in July from 96.4 to 95.7. We are still well below any semblance of “normalcy” in the small business arena. Small business added .01 workers per firm in July, the 10th consecutive positive month. That said, capital expenditures remain low, and sales are deteriorating. It is hard to reconcile a relatively glum NFIB survey with the idea that the S&P 500 is just off record highs. Does small business need to catch up with the big multinationals, or is the stock market being levitated by the Fed and thus vulnerable once the Fed takes the punch bowl away? IMO the answer is “yes.”

NFIB

Of course the Fed may not be in any rush to raise interest rates. Federal Reserve Vice Chairman Stanley Fischer was warning about slow growth in the future. Bottom line: until you start to see wage inflation, you shouldn’t worry too much about the Fed.

FHA head Carol Galante is stepping down as FHA Commissioner at the end of the year and returning to academia. Biniam Gebre, General Deputy Assistant Secretary for Housing will take over the role as Acting Commissioner.

Bill Gross has been selling Treasuries and MBS in the PIMCO Total Return Fund. He rotated into non-US developed debt and held emerging market debt steady. Good trade as Euro sovereigns have been on a tear lately.

As if the first time homebuyer didn’t have enough issues with student loan debt and tight credit, they face another challenge: limited inventory at the low end of the price range. The number of US homes for sale in the bottom third of the market – below $198,000 – fell 17% in June compared to a year earlier, according to Redfin. The supply rose 3% in the middle market and 15% in the top third. Blame professional investors who are snapping up low-priced properties to turn into rentals. Prices are rising too, with the low end jumping 15%, the middle increasing 13% and the top end increasing 9%.

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