Morning Report: ISM Survey points to higher inflation going forward 3/1/18

Vital Statistics:

Last Change
S&P Futures 2708.3 -6.3
Eurostoxx Index 375.7 -4.0
Oil (WTI) 61.2 -0.5
US dollar index 84.3 0.1
10 Year Govt Bond Yield 2.84%
Current Coupon Fannie Mae TBA 102.313
Current Coupon Ginnie Mae TBA 102.531
30 Year Fixed Rate Mortgage 4.4

Stocks are lower this morning on no real news. Bonds and MBS are up.

Jerome Powell is set to testify in front of the Senate this morning. On Tuesday, he made some hawkish statements about inflation that sent bond yields higher. I doubt we will see a repeat today, but just be aware.

Initial Jobless Claims fell to 210,000 last week, the lowest number since the 1960s. Last week included the President’s Day holiday, which means we could have some sort of funky adjustment going on,  but regardless it speaks to a labor market where employers are hanging onto their employees.

Personal Incomes rose 0.4% last month, while consumer spending rose 0.2%. The incomes number was a little better than expected. The inflation numbers show a modest pickup, but the core annual growth came in at 1.5% YOY, which is below the Fed’s 2% target.

Construction spending came in flat for January, and is up 3.2% YOY. Residential Construction was up 0.2% MOM and rose 4.3% YOY.

The ISM Manufacturing Index improved to 60.8 in January. New Orders drove the improvement and employment improved markedly as well. The report often includes some snippets from respondents, and many of them are touching on the same thing:

  • “Availability of electronic components, long lead times, allocations and constraints continue to wreak havoc in the purchasing cycle, with no end in sight at this time.” (Computer & Electronic Products
  • “Steel market is doing rather well. Everybody is out of what I need.” (Fabricated Metal Products)
  • “Employment is one of our biggest challenges. No labor available.” (Food, Beverage & Tobacco Products)
  • “Business is very strong, and our lines are running at full capacity.” (Plastics & Rubber Products)

All of these statements relate to demand-driven bottlenecks and point towards inflation going forward. In fact, an ISM reading of this level would normally correspond with GDP growth over 5%. Note that the Fed pays close attention to the ISM numbers.

CoreLogic has a good retrospective on the state of the housing markets in the US.

Interesting development in the capital markets: Streaming music site Spotify is going public, without doing an IPO. Instead of selling a chunk of the company to an investment bank, who then sells it to the public, Spotify will skip the whole process and do a direct IPO, where it sells stock directly to the public on the NYSE. Without the certainty of a set number of shares, a set price for the shares and any sort of lock up period, SPOT could be a volatile stock out of the gate.

The Senate looks poised to tackle banking reform, which essentially eases some of the Dodd-Frank restrictions on smaller banks. The asset threshold will be moved from $50 billion in assets to $250 billion in assets, which will prevent banks like M&T or Zions from having to conduct the detailed, 20,000 page stress tests that the bigger banks have to do. Aside from a few on the far left, there is general bipartisan support for easing the regulatory burden on smaller banks.

36 Responses

    • Agreed. Hicks was considered smart and well organized by whomever she dealt with in politics and in business. I have read that from press folks of every persuasion and heard it from the mouths of politicians. In fact, she was held in respect by many who have barely disguised contempt for DJT and Miller, Bannon, the Mooch, and some of the other characters who have graced this Admin. When she has been characterized as a “former model” I have read the derision into the words.

      Meanwhile, I expressed surprise to my bride the tax specialist that Ben Carson had dipped his beak in so unseemly a way into office furniture buying at our expense. He had not seemed the type, to me, unlike some of the self aggrandizing tycoons in the Admin. She thought otherwise from his Advise and Consent hearing before the Senate. She could not recall why.

      Like

  1. Always humorous to listen to our fearless leaders ask the Chairman of the Fed what he intends to do about global warming…

    Liked by 1 person

  2. Anybody else note Broward County apparently emulating Miami-Dades plan of not prosecuting crime in order to get money?

    https://threadreaderapp.com/thread/966854507744374784.html

    Apparently part of the reason shooter was not apprehended: they’d stopped prosecuting juvenile crime. And school officers were position for the most corrupt police officers, because they needed people who wouldn’t narc on the fact they were intentionally not arresting juvenile criminals in order to be able to claim juvenile delinquency was down.

    Like

  3. I’m slogging through an Active Shooter Preparedness course for work . . . though I’m not at a school. It’s a long course.

    Like

    • I aced it. “When there is an active shooter a situation, you should gather students around the doors and windows.” True or False?

      Such a waste of time.

      Like

      • KW:

        Such a waste of time.

        Reminds me of a test question I once saw designed for a class taken by University of Georgia basketball players (and taught by one of the assistant coaches).

        “How many points are given for a basket made from behind the 3-point line?”

        Liked by 1 person

        • So as not to let anyone go home empty handed, Groucho Marx as host of a quiz show would ask the consolation question “Who is buried in Grant’s Tomb?”

          Some folks went away empty handed, anyway.

          Like

        • Hah! A couple of times I’ve just let the training run and ignored it, then taken the quiz and just answered based on the most common of common sense. Usually I ace it. When I don’t, I can just take the quiz again and as long as I remember the right answer to the question I got wrong, I ace it again!

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      • Kev, is the gathering for the benefit of the shooter? We have to know that first.

        Liked by 1 person

        • No, the goal is to keep the kids safe. That’s implicit in the training materials. First, make sure you are safe and intact, then help others, except don’t help the shooter. Had a piece on how to attack the shooter if you have no other choice. I expect most teachers here are like: hell, no, I ain’t doing that.

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  4. Sen. Sasse: “We’re not ditching any Constitutional protections simply because the last person the President talked to today doesn’t like them.”

    Liked by 2 people

  5. More on how Cruz managed to escape the notice of authorities and legally buy his weapon (apparently thanks to Obama era school-leniency policies!):

    https://www.realclearinvestigations.com/articles/2018/02/28/obama_administration_school_discipline_policy_and_the_parkland_shooting.html

    Like

  6. Good read.

    “Why Putin’s Foes Deplore U.S. Fixation on Election Meddling

    By ANDREW HIGGINS
    NOV. 23, 2017 ”

    Liked by 2 people

  7. This comment in a Kos diary is everything you hoped it would be.

    It has nothing to do with “trade protectionism,” and everything to do with the glorious White Man righteously sticking one in the eye of unscrupulous, scheming Chinese and the brown Mexican hordes who are flooding our markets with their goods (goods which said White Man eagerly buys. They’re great bargains, after all!).
    White supremacy is never about making white people’s lives better, but about making PoC’s lives worse. 
    The “impression” will not change, short of a ruinous trade war that forces people to grudgingly realize that economic growth in the modern world depends on global trade.
    It took the destruction wrought by Smoot-Hawley to elect a president who finally broke free of stultifying Republican protectionism, lowered tariff barriers, and launched America into the era of free trade.
    It’s deeply ironic that the paleo-left invoke FDR’s name so often when criticizing the Democrats’ free-trade policies, for it was he who laid the groundwork for our modern free trade regime!
    History repeats, we again have a Republican president embracing Hoover-like austerity and protectionism, raising the specter of another severe economic downturn.
    The next Democratic president, if there is one, will support free trade policies. He/she may be more mindful of incorporating environmental and labor protections than previous Democratic presidents, but he/she will promote free trade.
    Please log in or sign up to continue.
    limpidglass Mar 01 · 12:47:16 PM

    https://m.dailykos.com/stories/1745782

    Like

    • that’s fantastic. He’s only supporting this because he’s racist, he’s also going to cancel the next election, and we need a D to implement free trade policies with sufficient virtue signaling on labor and green issues. that’s a bingo!

      Liked by 1 person

      • “The next Democratic president, if there is one, will support free trade policies. He/she may be more mindful of incorporating environmental and labor protections than previous Democratic presidents, but he/she will promote free trade.”

        And that’s how you know the Kochs have won. Their position is officially “woke” now (along with open borders) and that of labor is dismissed as “racist”.

        Because those are the only two options.

        The other great thing is progressives citing the Dow Jones average as the measure of economic health.

        Liked by 1 person

    • Of all the politically loaded words I hate, “austerity” has to be the worst. It officially means “decreasing deficits” but it gets conflated with tight fiscal policy.

      The top post WW-IIdeficits as a % of GDP are (in order) 2009,2010,2011,2012. By the official definition of “austerity” we were practicing it during the entire obama admin, which is actually true, however it highly misleading.

      It is like saying I am practicing austerity by exchanging the Ferrari I can’t afford with a Porsche I can’t afford.

      Like

      • The tell is that he called Hoover a practitioner of austerity. Hoover started many of the programs that became known as the New Deal. Hell, FDR campaigned against Hoover’s excessive spending.

        Liked by 1 person

        • FDR campaigned against Hoover’s excessive spending.

          Yep.

          Liked by 1 person

        • Real history is boring and most lies made up by white people. #Woke history is what you intuit must be true by your understanding of the world and racism and what vague things you recollect from that paper you wrote in college using Wikipedia as your only source. THAT’S REAL HISTORY! Wake up, Sheeple!

          Like

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