Morning Report: Goldilocks Jobs Report 3/9/18

Vital Statistics:

Last Change
S&P Futures 2762.3 17.0
Eurostoxx Index 376.8 0.2
Oil (WTI) 60.6 0.4
US dollar index 83.9 0.0
10 Year Govt Bond Yield 2.9%
Current Coupon Fannie Mae TBA 102.25
Current Coupon Ginnie Mae TBA 102.5
30 Year Fixed Rate Mortgage 4.4

Stocks are higher after the strong jobs report. Bonds and MBS are down.

Jobs report data dump:

  • Nonfarm payrolls up 313,000 vs expectations of 205,000
  • Unemployment rate 4.1% vs expectations of 4.0%
  • Labor Force Participation rate 63% vs expectations of 62.7%
  • Average Hourly Earnings up .1% / 2.6% vs expectations of .2% / 2.9%

Overall a great report for the stock market. Strong growth in payrolls, without a massive increase in wage growth. The civilian employment to population ratio increased from 60.1% to 60.4%, which matched the post-crisis record set in September. The labor force increased by 800k, while the population increased by 150k. The civilian employment to population ratio peaked in 2000 at 64.7% and bottomed in 2009 at 58.3%, and we are much closer to the low than we are to the high. Some of that is demographics, however there is undoubtedly still slack in the labor market that number bears it out. Which is why we still have the wage inflation typically associated with 6% unemployment and not 4% unemployment.

The Fed funds futures didn’t do much on the report – as we approach the March meeting, the probabilities of a hike continue to increase and are sitting at 89%, and the December futures are still coalescing around a prediction of 3 hikes this year. Chicago Fed President Charles Evans says he would argue against a March hike.

Home Depot is donating $50 million to train 20,000 construction workers over the next decade. “It’s important that we support the trades,” Home Depot CEO Craig Menear said in an interview. “Not only do we sell product to professionals like plumbers and electricians,” but the company also partners with service providers that install kitchen flooring, hot water heaters and other equipment in consumers’ homes. There are still 158,000 job openings in the construction sector that need to be filled.

Donald Trump announced tariffs of 25% on steel and 10% on aluminum yesterday, with temporary relief for Canada and Mexico while we renegotiate NAFTA. Senator Jeff Flake introduced legislation to overturn these tariffs. I would bet there are enough votes in both chambers to pass the bill, and there might be enough to override a veto.

File under “Only Nixon could go to China:” Donald Trump will meet North Korean President Kim Jong Un in May, to discuss the country abandoning its nuclear weapons program.

Mortgage credit decreased in February, according to the MBA’s Mortgage Credit Availability Index. Apparently the decrease was due to a single large investor in the conventional space. While we are close to post-crisis levels in the index, we are a long way from the go-go days of the bubble.

Soaring stock and real estate prices have sent net worth as a percent of disposable income to record levels.  I wouldn’t be surprised to see this number fall as the Fed pulls back support for the asset markets and we finally start seeing wage inflation.

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