Morning Report: Construction rises, manufacturing contracts 12/1/15

Stocks are higher this morning on economic strength out of Asia. Bonds and MBS are down.
Construction spending rose 1.0% in October. This is up 13% year over year. Residential construction rose 16.8% year over year, however the growth appears to be in multi-family construction, not SFR.
The ISM Manufacturing Index fell to 48.6 from 50.1 last month. A reading below 50 indicates that the manufacturing economy is generally contracting. This is the biggest decline since June of 2009. Inventory build is a problem, which has also been confirmed in the inventory to sales ratio. In fact, third quarter GDP was revised upward based on inventory build, however that inventory build essentially “borrows” growth from the following quarter. A reading of 48.6 would generally correspond to a GDP growth rate of about 1.7%.
Chart: ISM Manufacturing:

The weakness in manufacturing is a dollar issue, as commodity based companies and exporters are feeling the pinch. Since the US is the only economy contemplating tightening (while everyone else is deciding how much additional stimulus to put out), the dollar strength looks to continue.
Chart: US dollar index:

Vehicle sales are coming in this morning, and it looks like GM, Fiat-Chrysler, and Ford have missed their market forecasts. Most were reporting growth of about 3%. Auto loans are the new subprime.
Loews CEO and famed investor James Tisch said the Fed is “woefully behind the curve in waiting to raise rates. It should have been done years ago.” He is one of the people that is making the argument that raising rates could be positive for the economy as it will eliminate some of the misallocated capital (especially in the energy patch) and remove the penalty on savers.
Silicon Valley is attempting to disrupt the mortgage industry with a new model of non-QM, stated income loans where human interaction with the borrower is kept to a minimum. The Millennial generation generally prefers to interact with technology instead of a human. These firms are making huge investments in technology (in fact at one firm 7 or the 12 employees are IT people). They are also taking regulatory risks that many in the industry are unwilling to take. One CEO said: “There isn’t a banker out there that doesn’t look at me and shake his head and say, ‘You don’t know what you’re doing…But we’re doing it.”  They are also making a bet that the private label market will return at some point early next year. Interestingly, LOs are compensated on “customer satisfaction” and not commission.
Speaking of disruption, Morgan Stanley is laying off about a quarter of its fixed income trading team. Last year was a lousy year for fixed income trading in general, and the fee income just hasn’t been there. While the Fed has basically spoon fed rate expectations to the market, the exit of market makers will probably make the markets more volatile. Don’t forget, traders are generally young, and the majority of the ones who are left have never seen a tightening cycle before.
While Black Friday looks to have been a disappointment, initial indications suggest Cyber Monday went a little better.

12 Responses

  1. Residential construction rose 16.8% year over year, however the growth appears to be in multi-family construction, not SFR.

    1) Do townhouses count as SFR?
    2) Do you think this is another symptom of difficulty in getting a first mortgage?

    Frist, KW, frist!

    Like

  2. Townhomes count as multi-family. As far as demand, Millennials are choosing to rent (especially in urban areas). It could be for any number of reasons: tough credit, too much student loan debt, no kids yet so urban areas more attractive. Probably all of the above…

    Like

  3. Thx!

    Like

  4. I guess Salon figures that an army of Thurston Howells are invading the inner cities and conducting gang related violence…

    http://www.salon.com/2015/12/01/ted_cruz_defends_his_partys_honor_the_overwhelming_majority_of_violent_criminals_are_democrats/?utm_source=twitter&utm_medium=socialflow

    I am wearing my Bushwood colors…

    Like

  5. @michigoose: “Frist, KW, frist!”

    Sheesh. You have bested me again. You obviously have more free time than I do! 😉

    Like

  6. @brentnyitray: From the Salon article: “the man who attacked a Planned Parenthood clinic in Colorado last Friday, and reportedly told police that he did so because of “baby parts,” a reference to the hoax videos that circulated earlier this year”

    Apparently Salon doesn’t know the difference between a piece of propaganda (and every expose of any kind operates as propaganda) and a “hoax”. Seriously? “Hoax”? Not even “deceptively edited entrapment” or something.

    But the bar Salon is setting, one could reasonably assert that many of Salon’s articles are “hoax” articles. 😉

    Like

  7. Nobody reads Salon except for the true believers and the right wingers who laugh at the articles..

    Like

  8. You obviously have more free time than I do!

    Nah–it’s the same psychic connection with Brent that I use to summon HHR.

    Like

    • Finally, a campus administrator saying what needs to be said:

      http://legalinsurrection.com/2015/12/oklahoma-wesleyan-university-president-this-is-not-a-day-care-this-is-a-university/

      So here’s my advice:

      If you want the chaplain to tell you you’re a victim rather than tell you that you need virtue, this may not be the university you’re looking for. If you want to complain about a sermon that makes you feel less than loving for not showing love, this might be the wrong place.

      If you’re more interested in playing the “hater” card than you are in confessing your own hate; if you want to arrogantly lecture, rather than humbly learn; if you don’t want to feel guilt in your soul when you are guilty of sin; if you want to be enabled rather than confronted, there are many universities across the land (in Missouri and elsewhere) that will give you exactly what you want, but Oklahoma Wesleyan isn’t one of them.

      At OKWU, we teach you to be selfless rather than self-centered. We are more interested in you practicing personal forgiveness than political revenge. We want you to model interpersonal reconciliation rather than foment personal conflict. We believe the content of your character is more important than the color of your skin. We don’t believe that you have been victimized every time you feel guilty and we don’t issue “trigger warnings” before altar calls.

      Oklahoma Wesleyan is not a “safe place”, but rather, a place to learn: to learn that life isn’t about you, but about others; that the bad feeling you have while listening to a sermon is called guilt; that the way to address it is to repent of everything that’s wrong with you rather than blame others for everything that’s wrong with them. This is a place where you will quickly learn that you need to grow up.

      This is not a day care. This is a university!

      Like

  9. @ScottC1: “Finally, a campus administrator saying what needs to be said:”

    I dunno, sounds like he may have committed a hate crime.

    Like

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