Morning Report: Strong headline GDP number 10/28/16

Vital Statistics:

Last Change
S&P Futures 2127.5 4.0
Eurostoxx Index 340.8 -0.9
Oil (WTI) 49.2 -0.6
US dollar index 88.9 0.0
10 Year Govt Bond Yield 1.85%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 3.58

Stocks are higher this morning as earnings reports pile in. Bonds and MBS are flat.

The first estimate of Q3 GDP came in at +2.9%, which was higher than expected. Inventory and exports drove the increase. This is a sharp rebound after 3 extremely weak reports. Disposable personal income rose 3.6% and the savings rate was flat at 5.7%. This number will be revised at least once before the December Fed meeting.


Inventories and exports are not great indicators of domestic demand, however and that is what really drives the economy. If you strip those two things out, you can see that demand increased, but it wasn’t the blockbuster number that the headline GDP print suggests. This helps explain why GDP growth can be 2.9% (which is a robust expansion) and not feel like it. Consumer spending decelerated in Q3 from 4.3% to 2.1%. Back-to-school numbers for the retailers were disappointing, and this number bears that out.


Employment costs rose 0.6% in the third quarter as comp increased 0.5% and benefits increased 0.7%. Judging by the increase in Obamacare insurance premiums, benefit cost inflation will continue to increase the costs of employees which will act as a damper on wage growth.

Pending home sales increased 1.5% in September, according to the NAR. According to NAR Chief Economist Lawrence Yun, tight inventory remains a problem: “The one major predicament in the housing market is without a doubt the painfully low levels of housing inventory in much of the country…It’s leading to home prices outpacing wages, properties selling a lot quicker than a year ago 2 and the home search for many prospective buyers being highly competitive and drawn out because of a shortage of listings at affordable prices.” Of course this means the ratio of house prices to income is getting stretched. Wage inflation is needed to maintain these prices.

The US 10 year has gotten hammered over the past month. What is going on? Economic data has generally been soft (today’s GDP report notwithstanding). IMO, we are in the middle of a correction in global bonds. Using the German Bund as proxy for global bonds, you can see that yields have backed up in a big way over the past month. US Treasuries may not necessarily be rising ahead of the December GDP report and may simply be correlating with bond yields overseas. Note that the yield is higher than it was pre-Brexit.


45 Responses

  1. I am glad you went on to explain, because “inventory” is hardly a growth estimator, especially now. But it may presage optimism about Xmas buying, yes? No?



    • Inventory buildup basically means growth is being “borrowed” from the next quarter. The inventory to sales ratio has been building for quite some time. That said, modern inventory control and production systems prevent the ratio from getting too out of whack, certainly nothing like it was 25 years ago.


  2. Good piece on the likely spread of PC culture.

    “Trump’s campaign has variously been proof to some that too much democracy is a bad thing, that journalistic norms may have to be dispensed with, and that whistleblowing (when it helps Trump) is literally the work of the devil.

    In language remarkably similar to that used in some of the campus controversies, anti-Trump pundits repeatedly warned that certain kinds of speech during the course of the campaign had been “weaponized,” and therefore rendered illegitimate and unprotected.”


    • Gentlemen, you can’t fight in here! This is the War Room!


    • From Taibbi:

      The idea that the college experience is poor practice for the brutal real world assumes that the current generation of students about to enter the workplace won’t also seek to remake the professional world in the more regimented image of their campuses.

      This could be the most intelligent observation I have ever seen Taibbi make. This is both the danger of what is going on on campuses, and the expectation of those that are promoting it.


    • And now, back to a less thoughtful Taibbi:

      We shouldn’t be surprised at the loss of faith in civil liberties. After all, we spent most of the last two decades turning the Constitution into a punch line.

      George W. Bush started this ball rolling…

      You have got to be fucking kidding me. The left hasn’t given a shit about the Constitution in 100 years, but it was Bush that turned it into a punch line? Please.


      • I have always said that aside from abortion, gay marriage, and letting drag queens use the women’s john, the Progressive Left just simply isn’t all that into the idea of freedom…


    • “that journalistic norms may have to be dispensed with”

      Haven’t they already been? The need to get something out there every few minutes has basically put an end to serious research and fact-checking and editorial oversight.

      “warned that certain kinds of speech during the course of the campaign had been “weaponized,””

      … and soon, as in Frank Herbert’s Dune, Trump supporters would soon be using special words to kill their opponents.


  3. FFS .. one little bit of news that slightly less than awesome and it’s “its a conspiracy! the FBI is crooked!”


  4. Too bad this won’t likely make a difference. but man would it be awesome for clinton to lose because of Anthony Wiener’s dick. first Bill cheats. and then this. bahbabhaha


    • I actually feel sorry for Huma Abedin. She came across pretty well in the documentary (which everyone should watch) and I can imagine at this point she’s in the bathroom in whatever hotel they are at dry heaving.

      Liked by 1 person

      • jnc:

        I actually feel sorry for Huma Abedin.

        Apart from her Weiner problems, I don’t really know anything about Abedin, but I find it difficult to muster up sympathy for anyone who has ridden the corrupt Clinton coattails to power and wealth.


        • I’d suggest watching the documentary Wiener.

          I can completely disagree with her politics and even ethics and still feel for her as a human being when her life comes crashing down because of something her husband did.


        • jnc:

          I can sympathize with her in regards to her personal relationship to Weiner. But if her Weiner problems end up hurting Clinton and, as a consequence of that, Abedin herself, I say too f’n bad. You hooked yourself to a disgusting, corrupt politician to ride to fame and fortune, then you got what’s coming to you.


  5. Good lord, jnc, what did you say that pissed everyone off so much?


    • That FBI Directory Comey wasn’t corrupt and was right to inform Congress about the new E-mails that were discovered. They really can’t handle any departure from HRC partisanship.

      They really are easily triggered.

      By the way, where are you getting this from?

      “So now it has been revealed that Mr Comey felt “obligated” but was not legally required to send the letter to Congress.”


      • Pete Williams on NBC Nightly News.


      • I heard Comey tell the Committee he would keep them informed if anything else came up, so I have no problems with his keeping his word or his professionalism.

        Because there is virtually no likelihood of anything new or exciting aside from Weiner’s wiener on here it would be good for HRC if the FBI expedites their analysis. And if there is some smoking gun it would be good if the FBI were to expedite their analysis.


  6. Flabbergasting.


  7. I got a few votes for Congress from my neighbors in VA-11 as a write in. It’s happening!

    Liked by 1 person

  8. Perfect:

    Liked by 1 person

  9. Like

  10. On No Agenda (which does, to be fair, traffic in conspiracy theories among other things) an “independent source” told Adam Curry that a chunk of saved emails was found of Weiner’s laptop, in his account, in a folder called “Life Insurance”. Don’t know if it’s true, but if it’s true chances are there might be something interesting in there.


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