Stocks are higher this morning on overseas strength. Bonds and MBS are down.
The Labor Market Conditions Index rose 2.1% in August, better than the forecast. This is an index of various leading and lagging indicators.
The jobs report last week probably didn’t move the needle one way or the other with respect to the Fed’s decision next week. Yes, payrolls disappointed, but the 2 month revision was strong. The labor force participation rate remained mired at 38 year lows, however the unemployment rate ticked down and wage inflation ticked up ever so slightly. Note that August’s payroll miss seems to have a seasonal element to it and is usually revised upward.
The bond market seems to be ready for a rate hike. The Fed Funds futures are forecasting a very slow pace of tightening, the yield curve remains positively sloped, with the 10 year bond relatively heavy. Option volatility shows little sign of panic. The 10 year bond forward contracts indicate that even if the Fed hikes rates, the 10 year should maintain levels right around here.
The NFIB Small Business Optimism index edged up in August. Note that the survey was taken before the sell-off of the last few weeks. The labor data was decent – with businesses adding 0.13 workers, a historically strong number. Interestingly, 56% reported hiring or trying to hire, however 86% of those who are trying to hire are unable to find qualified candidates. (I wonder if “qualified” means someone with the wisdom of a 60 year old, the vision of a 50 year old, the efficiency of a 40 year old, the drive of a 30 year old and the paycheck of a 20 year old). Note that obama made an executive order over the weekend demanding that Federal contractors offer paid sick leave.
China has spent $260 billion trying to support its stock market. That is 2.4% of GDP. Note that stocks are not a major part of household assets, at around 2%. Real estate and bank deposits account for 70% and 24% of assets respectively. Interestingly the LTV of a typical Chinese home mortgage is about 17%. To put that in perspective, the US LTV is at 39%, and peaked at 57% in 2009.
Completed foreclosures dropped to 38,000 in July, according to CoreLogic. This is down 24% from last year, and 6% from June. Pre-financial crisis, 21,000 was a typical reading, so we have a way’s to go yet. Foreclosure filings have ticked up this year as the judicial states start to address their foreclosure inventory. The Northeast and Florida remain the states with the highest foreclosure inventory.
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