Morning Report: Small business optimism remains elevated

Posted on December 11, 2018 by Brent Nyitray

Vital Statistics:

 

Last Change
S&P futures 2667.5 28
Eurostoxx index 345.14 5
Oil (WTI) 51.55 0.25
10 year government bond yield 2.89%
30 year fixed rate mortgage 4.72%

 

Stocks are higher this morning on hopes of a trade deal. Bonds and MBS are down.

 

There were 7.1 million job openings as of the end of October, according to the BLS. This was largely unchanged from September. IT and real estate had the biggest increases in open positions. The quits rate fell by 0.1% to 2.3%. The Fed pays close attention to the quits rate as it historically has presaged wage inflation. The JOLTs report does echo what we saw out of last Friday’s employment situation report – the job market is still strong, however it is beginning to cool down a touch.

 

Small Business optimism slipped ever so slightly in November, however it remains at multi-decade highs. A tight labor market remains one of the biggest issues, with a scarcity of “qualified” – i.e. not just “skilled” labor as a major issue. A net 34% of all small businesses are increasing wages, a historically robust number.  While labor markets are generally tight, there still is a large number of people who are on the older side, who probably do want to work, but are unable to find jobs. Getting them back into the economy is needed in order to raise potential GDP, which acts as a speed limit on the economy.

 

NFIB

 

Mel Watt’s term running the FHFA is up in January, and it looks like Mike Pence’s Chief Economist Mark Calabria is the front-runner to replace him. Calabria is a Libertarian, which will be sure to upset affordable housing advocates. Mel Watt was considered to be an ideological kindred spirit of the affordable housing lobby, and he allowed Fannie Mae and Freddie Mac to increase their footprint in the mortgage market. Calabria will probably side with Republicans who want to see the GSEs reduce their influence, and will probably look to tighten requirements, increase guaranty fees, and lower eligible loan sizes. This of course assumes Congress does nothing about GSE reform, which is probably a safe assumption.

 

Funding for the government expires on Dec 21. Trump and the Democrats are negotiating over funding the wall. Government shutdowns generally do not affect the financial markets – as much as they bother the Washington Post, Wall Street does not care. That said, the last time we had a shutdown, originators were unable to get tax transcripts out of the IRS, so plan ahead.

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