Morning Report: Quits rate jumps in May 7/11/18

Vital Statistics:

Last Change
S&P futures 2781 -11
Eurostoxx index 382.05 -4.2
Oil (WTI) 73.29 -0.82
10 Year Government Bond Yield 2.85%
30 Year fixed rate mortgage 4.53%

Stocks are lower this morning after Trump threatened tariffs on $200 billion worth of Chinese goods. Bonds and MBS are flat.

China has vowed to retaliate if the Trump Administration follows through on its threat to impose 10% tariffs on about $200 billion worth of Chinese goods. Since China imports far less than $200 billion from the US, they may have to come up with other measures to retaliate – anything from denying visas to limiting tourism and increasing regulatory measures. Strategists are beginning to warn that the trade war could derail the recovery.

Inflation at the wholesale level increased in June, according to the PPI. The headline number rose 0.3% MOM / 3.4% YOY. Ex food and energy, it was up 0.3% / 2.8% and ex food energy and trade services 0.3% / 2.7%. Services and motor vehicles drove the increase.

Donald Trump nominated Brett Kavanaugh to the Supreme Court yesterday. He is generally a regulatory skeptic, and has ruled against overreach in the past. He has already weighed in on the CFPB, which he believes is unconstitutional. From CFPB vs PHH, writing for the majority: “The CFPB’s concentration of enormous executive power in a single, unaccountable, unchecked Director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decision-making and abuse of power, and a far greater threat to individual liberty, than does a multi-member independent agency. The overarching constitutional concern with independent agencies is that the agencies are unchecked by the president, the official who is accountable to the people and who is responsible under Article II for the exercise of executive power.” That said, Kennedy was already considered a vote against the CFPB, so the nomination won’t move the needle there.

Kavanaugh has also ruled against the EPA, which generally ignored the “cost” side of the “cost / benefit” analysis of regulations during the Obama Administration. Overall the regulatory environment for the financial industry could get a little easier with Kavanaugh on the Court.

Speaking of the CFPB, Brian Johnson has been tapped to be the #2 of the agency. He replaces Leandra English, who resigned last week.

Small business optimism remains elevated despite trade concerns, according to the NFIB Small Business Optimism Survey.  Employment continues to grow, with 1 in 5 firms adding employees in June on net. Sales are up overall, but margins appear to be facing pressure from higher labor and input prices. Credit needs are being fully met.

Job openings fell to 6.6 million in May, which was just off the record high of 6.8 million set in April. Hires were strong at 5.8 million, led by health care and social assistance. The big number was the quits rate, which is one of the best leading indicators of wage inflation. It rose to 2.4%.

The big question remains: how much slack is there really in the labor market? Most of the official numbers imply there is none. Yet, there is only modest wage inflation. I suspect the employment-population ratio tells the real story, and that number has yet to really recover from the Great Recession. Demographics are part of the story, but as people work longer, the assumption of 65 = retirement might have to change. I suspect many of those who are retired would gladly take a job if offered.

For the construction sector, the number of unfilled jobs hit a record high. That sector has been facing labor constraints for quite some time, and this partially explains why housing starts have been so far below what is needed to meet demand.

Mortgage Applications increased 2.5% last week as purchases rose 7% and refis fell 4%. Last week included the 4th of July, so there are all sorts of adjustments baked into that number. Refis fell under 35%, the lowest number since August 2008. ARMS decreased to 6.3%. Overall rates fell about 3-4 basis points last week.

Meanwhile, the MBA’s mortgage credit availability index improved last month as increases in conventional and jumbo availability offset a contraction in government.

53 Responses

  1. Trump’s commentary about the Russian/German gas pipeline reminded me of something.

    For all the talk about Trump being a puppet of Russia, he doesn’t appear to have gotten to the level of Gerhard Schröder by actually taking a job at Gazprom or having Putin host his birthday party.

    https://en.wikipedia.org/wiki/Gerhard_Schr%C3%B6der#Gazprom

    http://www.washingtonpost.com/wp-dyn/content/article/2005/12/12/AR2005121201060.html

    https://www.washingtonpost.com/news/worldviews/wp/2017/08/08/he-used-to-rule-germany-now-he-oversees-russian-energy-companies-and-lashes-out-at-the-u-s/

    Liked by 1 person

  2. Strategists are beginning to warn that the trade war could derail the recovery.

    Brent, what do you think of the strategists? Chicken littles or wise sooth-sayers? I ask because I get the increase in cost of consumer goods as being a bad thing in a lot of ways (but isn’t there some slack there; can’t most people afford a slight jump in consumer good prices?) but what are China’s retaliatory options? Really? Are there that many that won’t do more damage to them than to us?

    Most of the official numbers imply there is none. Yet, there is only modest wage inflation.

    While I work for a public school district and so market forces aren’t exactly un-distorted, we’re experiencing a situation in our department where we keep losing people because we pay under-market–sometimes well under-market wages–for positions. While I would prefer to pay these folks more to keep them, we have zero control over wages (that’s HR, and they have no interest in our problems). And it’s hard to hire people. I wonder if there’s just a general intransigence about trying to attract or keep employees with competitive wages.

    Like

    • Trade will matter at the margin, but I don’t see it derailing this economy. There was simply so much pent up demand building during the Obama administration that it will take a while to play out. Don’t forget the Millennials are getting into their prime spending years. That is going to offset the retiring boomers who have bought their last TVs, cars, etc.

      At the end of the day, exports are something like $800B and imports are something like $600B in a $17.4T economy. So when we are talking about a 10% tax on $200B worth of goods, we are talking about a 1/10 of 1% of GDP. Just to put the numbers in perspective. Of course if exports and imports go up by the same amount, it is a wash for the economy as a whole.

      I suspect 99.999% of the stuff in the news is just partisan analysis. When Obama imposed tariffs on tires, maybe the WSJ huffed about free trade, but no one else gave a damn. Obama was aggressive with taking our counterparties to the WTO, but that doesn’t seem to be Trump’s style.

      Re the labor market, I see some idiotic postings on Indeed: Wanted: Data scientist with Python, R, SQL, Tableau. MS or Phd, 3-5 years experience $40,000 – $50,000. Good luck with that, guys..

      From 1990 through 2007, the employment population ratio averaged around 63%, give or take. It is now at 60.4% after having bottomed at 58.2%. I think once we get the employment-population ratio back up the 63% level, we will start seeing some more wage inflation. The difference between 63% and 60.4% is about 8.5 million people, so it is a lot. And that is why (IMO) we aren’t seeing THAT much wage inflation despite unemployment rates around 4%. The thing is, think about that job ad above. That job ad will count as a job opening for JOLTs perspective, and employers will claim they can’t find qualified workers. Well, they have a choice of either increasing the comp to attract younger workers, or they will have to accept someone in their 50s who could probably pick up this stuff quickly on the job. Employers aren’t there yet.

      Liked by 1 person

      • Re the labor market, I see some idiotic postings on Indeed: Wanted: Data scientist with Python, R, SQL, Tableau. MS or Phd, 3-5 years experience $40,000 – $50,000. Good luck with that, guys..

        I’ve noticed this forever. Looking for gigs 15 years ago: “great starter position for neurosurgeon with pHd in economics. Ability to lift 1500 lbs unassisted preferred. $13 an hour, starting part time, full-time a possibility.”

        Our own job listings read like this sometimes, and the problem is that in a highly mobile economy, it can work for hiring, but it doesn’t work for retention. We hire a fair amount of people (although we don’t get that many qualified candidates). But we’re just a place for them to collect a paycheck until they can get a better job, and as soon as they do, they are out of here: usually with some good experience and several thousand dollars in training. I think some people stop in for six months to collect the job title of “Director of Security Management” in an IT department or something.

        and employers will claim they can’t find qualified workers

        Yup. We do that. Or, HR does that, although we keep pointing out that we’re offering below market prices–our high range is the bottom most other places (given we’ve got Fed Ex, military contractors, and International Paper in town) and they never give anybody the high range no matter what their experience level is. And so in their system it looks like we just can’t find any qualified applicants, so they conclude there aren’t any qualified applicants.

        Which is another thing: applying for jobs. We post jobs on our website. Listings and applications are done through a 3rd party piece of software. There’s some sort of algorithm that decides pay scales. Applying for a job is now like filling out a mortgage application. And you often don’t know if anybody has seen your application, or how to distinguish yourself, if they ever read the attached cover letter . . . I dunno, I think modern job application processes have had some distorting effect, Or at least changed things.

        either increasing the comp to attract younger workers, or they will have to accept someone in their 50s who could probably pick up this stuff quickly on the job.

        I’m 49 (and have a lot of vacation and sick days, one of the reasons I’m not as hot to jump as younger employees who haven’t been here as long) . . . but our workforce is getting older, especially in terms of who stays for any length of time. Younger, competent folks move on.

        Ah, well. I’m hoping employers get there eventually! But being older but seemingly knowledgable enough to pick things up will be a definite positive when reviewing future candidates.

        Like

    • McWing:

      For Scott.

      Thanks. Virtually any restriction on the power of the administrative state would be welcome. But I have a much better standard for how courts should deal with ambiguity, especially when it comes to federal agency “rule” making. Any ambiguity must be resolved against the federal agency. Unless the agency has clear and unambiguous authority to act in the way it desires to act, it should not be allowed to act.

      Liked by 1 person

  3. Heh

    Like

    • “But we were not outworked in the street. There was a very light field presence. He had people out there, but it wasn’t that many. We had hundreds of volunteers coming in. Towards the end, people were driving in from Massachusetts, from Ohio. A guy flew in from Iowa. That is the advantage of an enthusiasm gap. The media may not have been paying attention to our race, but everyday people very much were.”

      see, how does the press miss this?

      Like

      • Because the bias of the press is sensationalism, conflict and laziness.

        Like

      • In part because of the nature of that race, I think. If it had been a bigger race (to the press) they might have caught it. She’s the mirror image of Trump, and might well have the ability to suck all the oxygen out of the room in the same way, given a national spotlight.

        Minor newbies challenge incumbents, and attract devoted and loyal followers, all the time. For a lazy and entitled press, I imagine this race didn’t seem much different, until she won.

        Like

  4. I found this interesting — and I can relate to some of it.

    https://www.theatlantic.com/politics/archive/2018/07/trumps-closeted-sympathizers/564743/

    Like

    • Cons on PL called me an anti-anti-Trumper and I think that fits.

      I don’t like Trump, but I have nothing but complete and utter contempt for The Resistance, etc.

      Edit: I don’t think that article gets to the heart of it, or it’s describing some other species of actual Trump supporter. For myself, it’s more about being constantly irritated at the conspiracy theories at the heart of the Resistance narrative.

      Liked by 1 person

      • jnc:

        anti-anti-Trumper

        Sign me up.

        Like

      • ” don’t like Trump, but I have nothing but complete and utter contempt for The Resistance”

        Yah, me too. I am neutral towards Trump as a president, find him kind of repellant as a person a lot of the time (but other times funny and almost charismatic). But the anti-Trump folks seem so detached from reality that they make Trump look way better to me by comparison.

        Like

    • nova:

      That article was insightful and on the mark, except for the very last, depressingly moronic and demogogic sentence.

      Liked by 1 person

      • There is, however, one thing I do not comprehend about the Trumpverstehers. I do not understand how the cries of an infant torn from its immigrant mother’s arms now fail to rend the hearts of people who, in other settings, I once knew to be upright, generous, and kind.

        Irony. It’s exactly that sort of sentiment that creates the Trumpverstehers of the article. And this is my biggest problem, as I actually don’t mind conspiracy theories as thought experiments (although a religious belief in them gets icky): this is not a scene that happened. This is not a thing that was happening.

        There is no evidence, and even if it did actually happen, Trump has no “tear the babies out of the arms of mothers” policy or executive order, and no order going down to the rank-and-file to do so.

        It’s not remotely accurate, and describes nothing of the underlying machinations behind the separation of children and the adults traveling with them (who are often not, in fact, their parents, which it also leaves out–adults and children crossing into our country illegally are not synonymous with a vacationing family taking a wrong turn in Alabama and running into an inbred family of cannibals or something).

        It’s these folks willingness and even avid desire to live in an *almost* entirely fictional world that grates on me. And it seems more universal and at much higher levels than, say, the speculation that Obama was a closet Muslim panning to institute Sharia law in the 11th hour of his presidency.

        These people are supposed to be smart and erudite and by all signs seem to be educated and capable of cogent thought, yet they accept emotionally crafted narratives without evidence as fact, and then repeat it ad infinitum.

        They also take small facts or bits and pieces of facts and construct elaborate narratives that involve them both knowing things they cannot know, that perhaps cannot be known, or involve a great deal of mind reading and ability to see the future. Which they can’t actually do, but clearly believe they can.

        That grinds my gears.

        Like

        • Apparently, to these people, illegals have no agency.

          Liked by 1 person

        • “There is no evidence, and even if it did actually happen, Trump has no “tear the babies out of the arms of mothers” policy or executive order, and no order going down to the rank-and-file to do so.”

          I think you are being overly generous to the administration here.

          The separation was a foreseeable, and I’d argue intended consequence of the changes they made, even if there was no specific individual policy that caused it.

          They don’t get a pass for their own choices.

          Like

        • What, in your mind, is wrong with the policy?

          Like

        • The parental separation is unnecessary and traumatic for the kids and inappropriate while there’s still an asylum claim pending. If they can’t be kept together in detention, then released with electronic monitoring is preferable to separation.

          I also don’t view it in isolation from the issues being created for people who are trying to present themselves at the actual border crossings rather than cross illegally.

          Like

        • If they can’t be kept together in detention, then released with electronic monitoring is preferable to separation.

          My understand is that these are illegals who, wheb apprehended then claim asylum. The kids can’t be held for more than 20 days and of those that are realesed w/ankle monitoring less than 30% show up for their hearing. Also, when they’re apprehended and claim asylum they are (or were) told they’d be separated from their kids. Seems to me it’s on the parents at that point, no?

          Like

        • jnc:

          The parental separation is…inappropriate while there’s still an asylum claim pending.

          I disagree. Merely claiming asylum ought not be a free pass from having broken the law.

          If they can’t be kept together in detention, then released with electronic monitoring is preferable to separation.

          I think that depends on how effective the electronic monitoring is. If 50% of people cut the bracelet and disappear, I’d prefer separation.

          I also don’t view it in isolation from the issues being created for people who are trying to present themselves at the actual border crossings rather than cross illegally.

          I do. I don’t know if the administration is treating such circumstances as separate issues, but I think they should be. People who claim asylum in the open, proper way should be treated differently than those who try to sneak in and then claim asylum only after they’ve been caught.

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        • “I disagree. Merely claiming asylum ought not be a free pass from having broken the law.”

          There’s nothing in the law that mandates family separation as a punishment for crossing the border illegally.

          Like

        • jnc:

          There’s nothing in the law that mandates family separation as a punishment for crossing the border illegally.

          I don’t find that a very compelling argument. There’s nothing in the law that mandates family separation as punishment for anything. Nevertheless, families routinely get separated when someone gets incarcerated for breaking the law.

          Liked by 1 person

        • “Seems to me it’s on the parents at that point, no?”

          Sure in the sense that getting your hands chopped off in Saudi Arabia is on the thief.

          I still don’t support it as a matter of policy.

          Like

        • jnc:

          Sure in the sense that getting your hands chopped off in Saudi Arabia is on the thief.

          Are thieves in SA given the choice of keeping their hands if they simply return to where they came from? If not, I don’t think your analogy is apt.

          Like

        • “People who claim asylum in the open, proper way should be treated differently than those”

          Trump’s intentionally trying to thwart that as an option. He’s not acting in good faith.

          https://theintercept.com/2018/06/16/immigration-border-asylum-central-america/

          Like

        • jnc:

          Trump’s intentionally trying to thwart that as an option. He’s not acting in good faith.

          Whether Trump is acting in good or bad faith has nothing to do with my opinion of which policy is the proper policy. Simply put, if we want legitimate asylum seekers to seek asylum in the proper way, then we need to provide disincentives to people for not doing so.

          Like

        • “Simply put, if we want legitimate asylum seekers to seek asylum in the proper way”

          I don’t find that a compelling enough reason to justify the current policy. And Trump doesn’t care about that distinction anyway. He’s trying to block people from applying in the proper way as well.

          Keep in mind that I’m a libertarian Koch Brothers open borders guy. My only issue with open immigration is the costs it incurs associated with the welfare state, but I would far prefer to eliminate the welfare state instead of restricting immigration.

          Like

        • jnc:

          I don’t find that a compelling enough reason to justify the current policy.

          OK, but do you even acknowledge the need for/sense in treating the two situations differently at all?

          Keep in mind that I’m a libertarian Koch Brothers open borders guy.

          I get that, and I have a lot of sympathy with that view, although less than when my entire focus was economics and I didn’t pay much attention to security.

          …but I would far prefer to eliminate the welfare state instead of restricting immigration.

          Me too, but I think we should set immigration policy for the world we live in, not the world we wish we lived in.

          Like

        • @jnc4p: “The separation was a foreseeable, and I’d argue intended consequence of the changes they made, even if there was no specific individual policy that caused it.”

          That’s a different issue, and if that’s how the writer had presented it, as either a lack of foresight or caring about potential family separations, that would be a reasonable position.

          As it is, it’s written as if there was a specific initiative to separate children from their parents, and that this one done by the ripping of crying infants from their mothers arms.

          Like

        • @jnc4p: “but I would far prefer to eliminate the welfare state instead of restricting immigration.”

          Eliminating the welfare state would restrict immigration, too. It would especially restrict the immigration of folks looking to game the system. Alas, I don’t see that happening.

          Like

        • “OK, but do you even acknowledge the need for/sense in treating the two situations differently at all?”

          Sure, but that requires good faith on the part of those making the differentiation.

          And even in the case of those who do cross illegally, I don’t think the goal of dissuading illegal crossings justifies the tactic of family separation.

          Like

        • jnc:

          Sure, but that requires good faith on the part of those making the differentiation.

          I think any discussion of the merits of literally any political policy on literally any subject is predicated on the good faith execution of that policy. I don’t know anyone who thinks “This is the best policy, provided it is executed in bad faith.”

          And even in the case of those who do cross illegally, I don’t think the goal of dissuading illegal crossings justifies the tactic of family separation.

          I don’t think it should be a “tactic”, just as I don’t think family separation should be a “tactic” of the enforcement of, say, laws against theft. But I have no more problem with it being an effect of enforcement of immigration laws than I have with it being the effect of laws relating to anything else. We incarcerate US citizens who represent a flight risk pending legal proceedings all the time, with regard to all kinds of laws. Why should foreigners trying to sneak into the country be treated any differently?

          Like

        • “As it is, it’s written as if there was a specific initiative to separate children from their parents, and that this one done by the ripping of crying infants from their mothers arms.”

          I don’t think it was an accident, unforeseen consequence, or oversight.

          Sure there was no written policy of “separate kids from parents at the border”, but it wasn’t needed.

          Everyone in the room knew this would happen as a result of other policies that were being changed. That’s why it was dragged out and avoided for this long.

          Like

        • jnc:

          Everyone in the room knew this would happen as a result of other policies that were being changed.

          Well, by that metric the alternative policy could then be reasonably characterized as a specific initiative to allow illegal immigrants with children unfettered entry into the United States. After all, everyone in the room knew that this would happen as a result of all of the other policies in place.

          So I suppose we can only have presidents who either are completely lacking in any empathy or are completely indifferent to border security.

          Like

    • The economy is being strangled? I mean, I’d like to see some wage growth as much as the next guy, but by what metric does anyone suggest the economy is being strangled right now?

      I suppose I should read it.

      Like

    • All around, there are at least faint signs of hope.

      WTF? The economy is about as good as it ever really gets or could rationally be expected to be in the real world, and “there are at least faint signs of hope”? Seriously?

      What was he writing during the Great Recession? “It’s all over, kill yourselves now”?

      This is because of the inadequate Obama-era stimulus, and the turn to austerity after 2010

      OMG. Why does anybody read this? Why am I reading this? It’s because you linked to it and said it was awful. You warned me, I know, but still. Why does anybody *else* read this?

      and it’s getting worse with every passing year.

      I agree, as I listen to audiobooks on my iPhone while driving in my so far very durable car with its bluetooth (a car that was very reasonably priced) to my air-conditioned house in a nice suburb in the era of antibiotics and the Internet . . . ugh.

      The stuff on FDR. OMG.

      Well, I’m convinced. We need to raise taxes and give it to The Wise Sages in government to spend it for us. And economic prosperity will rain from the heavens!

      Do they charge money for that magazine?

      Like

  5. I always appreciate Jacobin’s honesty on topics like this:

    “Don’t Take the Boss’s Bait

    By Joe Burns

    In the wake of Janus, it’s tempting for some trade unionists to give up on representing all workers in a given workplace. This is exactly what the boss wants.

    Labor rejected the idea that individuals should have the option to undercut the rest of us by selling their labor at less than the union rate. Those who crossed picket lines were deplored as scabs.

    By insisting on a closed shop, which required hiring only union members, unions weren’t mainly securing dues payments — we were challenging management for control of the workplace itself.”

    https://www.jacobinmag.com/2018/07/janus-open-shop-union-working-class

    That’s what the PL crowd doesn’t get. It’s not about freeloading. It’s about control. Management and the workers who opt out would prefer it if the union ceased representing them.

    Liked by 1 person

    • “For instance, 500,000 steel workers struck for months in 1959, crippling industry across the United States and forcing President Eisenhower to intervene.”

      My grandfather was part of that strike. The way dad tells it, the union didn’t hold up it’s end of the bargain re: strike pay. he’s not sure how they put food on the table, but they did.

      Like

      • “the union didn’t hold up it’s end of the bargain”

        Which is why, when given a chance to opt out, so many people do. And why enabling unions to deduct dues from the paychecks of all employees like a government tax is a bad idea.

        Like

  6. Is there a Double Secret Supreme Court I am unaware of?

    https://www.whec.com/news/protecting-roe-v-wade/4985286/

    Liked by 1 person

  7. Good 2013 speech on the federal judicial selection process by Kavanaugh, as reported by Adler.

    http://reason.com/volokh/2018/07/11/judge-kavanaugh-on-the-confirmation-proc

    I’m thinking a post-DJT POTUS will be more open to this, as Clinton and Bush were.

    Whether the games were played by Rs or Ds [and both played them] it has been sickening to those of us who think the courthouse should be open for justice to see so few judges confirmed timely. And Kavanaugh himself, a judge who would be on any Rs short list, and who is obviously qualified, is going to be bombarded by a bunch of know nothing interrogators in the Senate. YMMV.

    Of course, something could come up in any vetting that would make the appointment problematic. But I assume the vetting will be done by the FBI, not the Senate.

    Like

    • Generally, the Senate tends to be more about preening and posturing when it comes to these things, or at least it so feels to me. They are playing for the audience, not attempting to ascertain qualifications.

      Like

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