Morning Report: Productivity rises 8/15/18

Vital Statistics:

Last Change
S&P futures 2824 -16.5
Eurostoxx index 380.78 -4.14
Oil (WTI) 66.49 -0.55
10 Year Government Bond Yield 2.86%
30 Year fixed rate mortgage 4.58%

Stocks are lower this morning on overseas weakness. Bonds and MBS are up.

Kind of a mixed bag with economic data this morning.

Retail Sales came in well above expectations in July, with the headline number rising 0.5%. The control group, which excludes autos, gas, and building materials was up the same amount. While July’s numbers were strong, June’s estimate was revised downward, so expect to see a downward revision on Q2 GDP from the first estimate of 4.1%.

Mortgage Applications fell 2% last week as purchases fell 3% and refis were flat. The typical mortgage rate fell 3 basis points, which helped push refis up to 37.6% of all mortgages.

Productivity increased 2.9% as output increased 4.8% and hours worked increased 1.9%. Compensation costs increased 2%, so with the productivity gain, unit labor costs fell 0.9%. This will certainly make the Fed happy, as higher productivity leads to higher non-inflationary wage growth and higher standards of living. This is the preliminary estimate for the second quarter and will be subject to revision.

Industrial production only managed a 0.1% gain in July, and manufacturing production was up 0.3%. June numbers were revised sharply higher, so that offset the weakness. Capacity Utilization was flat at 78.1%.

Homebuilder confidence slipped last month to the lowest in a year as labor shortages and higher material prices dampen sentiment. “The good news is that builders continue to report strong demand for new housing, fueled by steady job and income growth along with rising household formations,” said NAHB Chairman Randy Noel, a homebuilder from LaPlace, La. “However, they are increasingly focused on growing affordability concerns, stemming from rising construction costs, shortages of skilled labor and a dearth of buildable lots.”

Despite the strong economic news, we are starting to see a bit of a risk-off trade in the structured credit market. Bank of America has gone negative on structured products and agency MBS. This means that mortgage spreads are widening which will either lead to higher mortgage rates or lower profit margins (probably a bit of both). That said, B of A is calling for a flattening of the yield curve, which will offset the wider spreads at least somewhat.

The strong economy is lowering delinquencies, according to CoreLogic. The 30 day + DQ rate fell from 4.5% to 4.2% in May. Seriously delinquent rates are lower overall, except for the hurricane hit states of Florida and Texas. The California wildfires have the potential to goose up DQ rates in the coming months.

21 Responses

  1. Colorado trying to drag the poor baker who beat them at SCOTUS back into court.

    Click to access MasterpieceCakeshopProbableCauseDetermination.pdf

    Liked by 1 person

    • Every knee shall bend.


      • Progressives truly are an intolerant, horrible breed of people.


        • and they think they are the victims here….

          cause nothing says oppression like the inability to drive 3 hours out of your way, bypassing hundreds of perfectly good bakers, to find the one who declines to celebrate your transition party.

          Liked by 1 person

    • Is this substantially different than the case they already lost in the Supreme Court?


      • At the time the state “lost” the Supreme Court decision, they were given a road map for a do over to get upheld the next time.

        Basically disguise their anti-religious bias a bit better.

        Liked by 1 person

      • Gay-friendly bakers and florists are just so hard to find…

        Liked by 1 person

        • And there’s a difference between the classic civil rights arguments in terms of culture. These “I don’t want to cater gay weddings because of religion” folks are in a tiny minority. When it came to integration of lunch counters and water fountains and bathrooms, there was (a) a substantial portion of citizens impacted by the discrimination, (b) it was the standard of the culture, generally propped up or even codified by local government and (c) no access to integrated facilities, so no alternatives.

          Now, tit has inverted, so that the dominant culture requires tiny minorities to conform in all ways to the dominant culture’s preferences, and the tools being used to enforce the cultural preferences are much the same legal tools once used to fight discrimination.

          But the big thing remains, to me, that there’s just no negative impact on anybody because the guy doesn’t want to provide cakes for homosexual or transexual events. While I disagree with his position (eh, it’s money, and it’s a job) in the modern era that’s just a market opportunity for others (a large number of whom began pimping their tolerance as a selling point the minute this argument started).

          The solution to an individual making decisions I don’t agree with is not to immediately file a lawsuit. IMO. I think it ultimately sets a bad precedent (as did the response to the unfortunate Starbucks ejection of African-American loiterers with the aid of the police) , slowly drawing us to the point where you can’t refuse business for almost any reason, where you can’t eject people not actively in the process of committing murder, and where businesses feel obligated to adopt tolerance levels and embrace bad behavior to a point that it puts those businesses OUT of business in urban and underserved neighborhoods.

          Although the left (and often the political representatives of such areas) tend to do everything to drive businesses out of poor and underserved communities.


      • KW:

        Is this substantially different than the case they already lost in the Supreme Court?

        Not from what I can tell, except that in this case it is obvious that the baker has been deliberately targeted by some trans activist looking to file a complaint.

        Liked by 1 person

        • that’s a interesting point.

          do you have standing if you are looking for/and or seeking out “harm.”

          Liked by 1 person

        • You shouldn’t. Folks just trying to cause trouble her are in no way negatively impacted or deprived by one baker out of dozens who doesn’t want to bake them a gay cake. 😉


  2. I had forgotten that the Bork confirmation battle was the first one to feature a television advertising campaign against the nominee.

    Liked by 1 person

    • Greenhouse, demonstrating her usual inability to grasp reality:

      Here’s my fantasy, my fondest hope for rescuing the Supreme Court from the precipice over which the current confirmation process is pushing it.

      It isn’t the confirmation process that is pushing SCOTUS over a precipice. It is the type of a-constitutional Constitutional law practiced by the very Court members that Greenhouse most supports that is doing so.


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