Morning Report: Good numbers out of D.R. Horton 11/10/15

Stocks are lower on no real news. Bonds and MBS are flat

The NFIB Small Business Optimism Index was flat in October at 96.1. Interestingly, “quality of labor” has replaced “poor sales” as the #3 issue facing small business (taxes and regulations are 1 and 2). Over half of all firms reported trying to hire in October, but 48% of them couldn’t find qualified applicants. A net 17% of small businesses intend to raise pay, up from September and the highest level since 2007. Perhaps we are finally starting to see wage growth pick up in the US.

Import prices fell 0.5% in October and are down 10.5% year-over-year.

Wholesale inventories and wholesale sales rose 0.5% in September. The inventory to sales ratio is at 1.31, which is pretty high and is a warning sign for a cyclical slowdown.

Completed Foreclosures are up 50% to 55k in September, but are down 17.6% year-over-year. The seriously delinquent percentage is 3.4%, the lowest since December 2007. The judicial states, particularly the Northeast are beginning to make some progress in reducing their foreclosure inventory.

Homebuilder D.R. Horton reported better-than-expected numbers this morning. Earnings were up 44% to 64 cents a share. They also hiked their dividend. Homebuilding revenue was up 28% and orders increased by 19%. Overall, orders seem to be looking up for the builders, which bodes well for the 2016 Spring Selling Season, which starts in a few months.

Speaking of betting on housing, two big timber REITs – Plum Creek Timber and Weyerhaeuser – announced a merger yesterday. This deal is basically a big levered bet on housing. The US has under-built for years and we have tremendous pent-up demand, especially at the lower price points.

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