Morning Report – Economic Data Dump and the FOMC 4/30/15

Stocks are lower this morning on no real news. Bonds and MBS are down as European bonds continue to sell off.

European bonds have been selling off as fast money gets caught on the wrong side of the boat. This is pushing up Treasury yields, which should be moving down based on some of the economic data lately.

There is a lot of economic data this morning. Initial Jobless Claims fell to 262,000, the lowest reading in 15 years. The ISM Milwaukee index fell to 48.08. The Bloomberg Consumer Comfort Index fell to 44.7 and the Chicago Purchasing Manager Index rose to 52.3.

The Employment Cost Index rose .7% in Q1. Wages and Salaries increased .7%, while benefits increased .6%. On an annualized basis, wages and salaries were up 2.6%, while benefits were up 2.7%. This is a big jump from the fourth quarter reading of 2.1%, and the average over the past few years of around 2%. One data point does not make a trend, but economically this is encouraging – wage growth has been a long time coming.

Personal Income was flat in March, however compensation was up .2%. Personal spending rose to 0.4%, and the savings rate dipped slightly to 5.3%. The savings rate has been trending upward however, as people use some of the added income to pay off debt. The increase in spending is an encouraging data point.

Inflation remains low, using the Fed’s preferred inflation measure, personal consumption expenditures. On a year-over-year basis, the core number is up 1.3%, well below their 2% target. Given the weak Q1 GDP number and the weak inflation numbers, I find it hard to imagine the Fed moving in June.

The FOMC statement was pretty bland, and we didn’t see much of a reaction. The slowdown was attributed largely to “transitory factors.” On rate hikes: “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.” Given unemployment is back at normal levels, they are probably looking at wage growth as their key metric.

The Bernank is now an advisor to PIMCO, as well as Citadel. Bond managers will be like: “Hey Ben, can you take Janet’s temperature on a June rate hike?”

Household formation increased at an annual rate of 1.5 million in Q1, even as the homeownership rate dipped. This is good news for landlords, however it isn’t spilling over to residential construction yet, with housing starts still mired about 70% of normalcy.

10 Responses

  1. Damn you, McWing! You only fristed me because I had to log in.

    Blast.

    Like

    • Notable comment from the solicitor general yesterday during oral arguments in the case over whether or not the constitution requires states to redefine marriage to mean something it has never meant in all of past human history:

      JUSTICE ALITO: Well, in the Bob Jones case, the Court held that a college was not entitled to tax­ exempt status if it opposed interracial marriage or interracial dating. So would the same apply to a university or a college if it opposed same­-sex marriage?

      GENERAL VERRILLI: You know, I ­­ I don’t think I can answer that question without knowing more specifics, but it’s certainly going to be an issue. I ­­ I don’t deny that. I don’t deny that, Justice Alito. It is ­­ it is going to be an issue.

      Of course it is going to be an issue. The slippery slope created by exceptions to our fundamental governing principles for racial reasons just gets more and more slippery. Our descent into progressive authoritarianism continues apace.

      http://www.supremecourt.gov/oral_arguments/argument_transcripts/14-556q1_7l48.pdf

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  2. dammit, republicans will never be able to cut social spending (not that its likely anyway) without being willing to cut defense..

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    • Brent:

      dammit, republicans will never be able to cut social spending (not that its likely anyway) without being willing to cut defense..

      I agree with you entirely. R’s need to prove themselves dedicated to cutting spending by cutting, or at least holding the line, on that which they favor. But given that entitlement spending dwarfs defense spending, that reality is more than a little odd.

      Like

  3. All they had to do was maintain the sequester status quo. Now it’s going to be a free for all.

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  4. Why is Republican behavior surprising or disappointing?

    Like

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