Morning Report – Household formation back to normalcy 3/3/15

Stocks are lower this morning on no major news. Bonds and MBS are down small.

January auto sales are generally coming in below estimates this morning, which has largely been attributed to the weather.

Bad weather in the Northeast didn’t stop the ISM New York survey from jumping to 63.1 from 44.5. This is the highest reading since September.

The IBD / TIPP Economic Optimism Survey rose to 49.1 from 47,5.

CitiGroup is selling its subprime lender OneMain Financial to Springleaf for $4.25 billion in cash. Springleaf is controlled by Fortress. The demolition of the House that Weill Built continues…

Lumber Liquidators fell 25% yesterday after a 60 Minutes report said that there were unsafe levels of formaldehyde (a carcinogen) in its Chinese-made flooring. The company disputes the report and made a filing with the SEC claiming that all of its flooring meets the safety standards set by US regulators. The company blames short sellers for feeding the report to 60 minutes. FWIW, the days to cover has jumped over the past month from about 8 to 14.5. While not quite Herbalife, this one could become a battleground stock.

The absence of the first time homebuyer has been an issue for the real estate market, both in terms of transactions and new building. Housing formation has been depressed since 2006 as a combination of unaffordability during the bubble years and a tough job environment for new grads post-bubble has kept household formation low. Note the Millennial Generation is actually bigger than the Boomers – so this isn’t due to fertility rates 25 years ago. It appears that household formation has finally rebounded at long last. Granted, many of these new households will be renters, but it seems like we have at least made the leap back to normalcy (latest reading is just under 2 million) and we are out of this depressed range of 250k – 750k households forming a year. Now if we could only get housing starts back to a normal range of 1.5 million to 2 million, we would be in good shape economically.

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