Morning Report: 2018 GDP highest in 12 years

Vital Statistics:


Last Change
S&P futures 2788 -6.75
Eurostoxx index 371.36 -1.22
Oil (WTI) 56.82 -0.13
10 year government bond yield 2.67%
30 year fixed rate mortgage 4.34%


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


Fourth quarter GDP came in at 2.6%, a deceleration from the third quarter reading of 3.4%, but much higher than many in the political economic punditry were predicting. Consumer spending rose 2.8%, while inflation rose 1.6%. Inflation fell from 1.8% in the third quarter. For 2019, GDP came in at 2.9%, the highest reading since 2006.


Initial Jobless Claims rose to 225,000 continuing a string of extremely low readings.


One of the most politically explosive issues these days concerns wage growth – why it seems to be so low and what can be done about it. Many will misinterpret cherry-picked numbers to make the claim that wages have not increased for 40 years, which is preposterous. That said, wage growth has been running in the high 2s, and with inflation around 2%, that equates to under 1% real wage growth. Modest, but certainly not what you would expect, especially this far into a recovery, especially with unemployment running below 4%. If the numbers don’t appear to comport with common sense, often times there is an issue with the numbers.  That seems to be the case here. It turns out that wage growth is quite a bit higher, and it is due to the measurement problems inherent in the Bureau of Labor Statistic’s calculations. The BLS basically adds up wages paid and divides it by hours worked. If higher paid older workers are exiting, and younger lower paid workers are entering it will depress the averages, and it won’t accurately measure the growth that someone who has stayed in the labor force for the entire year has seen. Take a look at the chart below, where the Fed imputed average wage growth from census data as opposed to the BLS. Wage inflation jumps from 3% to 5%, which makes a lot more sense given the current economic numbers.


average hourly earnings vs census


Toll Brothers reported an increase in pretax earnings and sales for the first quarter of 2019. Orders declined in a big way however, falling 24% in units and 31% in dollars, driven primarily by weakness in California. Home price appreciation has been moderating in the hotter markets, and it is especially pronounced in the luxury segment, where Toll resides. The cancellation rate jumped to 9.6% from 5.3% a year ago. Tax reform limited the mortgage interest deduction, and the luxury segment is most prominent in high tax states, so those two effects are squeezing demand. predicts this year’s Spring Selling Season could be the weakest in years despite rising inventory. While lower rates have improved conditions compared to late 2018, we are still weaker than early 2018.

41 Responses

  1. sad trombone for the business press on the GDP print

    Liked by 1 person

  2. Interesting what Democrats now consider “an embarrassing setback” these days

    “Surprise GOP tactical win in House exposes divisions in Democratic leadership

    By Mike DeBonis
    February 27 at 9:10 PM

    A surprise Republican win in the House on a procedural vote Wednesday exposed divisions within the Democratic leadership, set off recriminations and underscored that the party is still adjusting to its new majority.

    GOP leaders used one of the few tools available to the House minority to amend a Democratic gun-control bill, adding a provision that would require notification to U.S. Immigration and Customs Enforcement when undocumented immigrants try to buy guns.

    Twenty-six Democrats joined Republicans on the vote, an embarrassing setback for party leaders who had carefully screened amendments to keep GOP fingerprints off a high-profile bill.”

    So an illegal alien tries to buy a gun and the Democratic position is that ICE shouldn’t be alerted?

    Liked by 1 person

    • It’s like they want to see Trump get a second term. And lose seats in the election to boot.


    • The infighting over that vote continues:

      “House Democrats explode in recriminations as liberals lash out at moderates

      By Mike DeBonis
      February 28 at 7:35 PM

      House Democrats exploded in recriminations Thursday over moderates bucking the party, with liberal Rep. Alexandria Ocasio-Cortez threatening to put those voting with Republicans “on a list” for a primary challenge.

      In a closed-door session, a frustrated Speaker Nancy Pelosi (D-Calif.) lashed out at about two dozen moderates and pressured them to get on board. “We are either a team or we’re not, and we have to make that decision,” Pelosi said, according to two people present but not authorized to discuss the remarks publicly.

      But Ocasio-Cortez (D-N.Y.), the unquestioned media superstar of the freshman class, upped the ante, admonishing the moderates and indicating she would help liberal activists unseat them in the 2020 election.”

      Liked by 1 person

    • Guarantee you it will be a replay of the Tea Party, where moderates are shunted aside by insurgents in the primaries and elections are lost that should have been won because the new blood is simply too daffy.

      Liked by 1 person

  3. Institutional investors are now pushing companies to genuflect to climate change issues.

    These investors are Blackrock, State Street, Vanguard etc – in other words index funds and ETFs. Index funds are compensated on how tightly they track the relevant index. Theoretically, they could force a vote to make Smith and Wesson end the sale of firearms and go into non-farting cow research. If the stock goes to zero, so what? As long as they match what the index did, they couldn’t care less.

    I smell the indexing rat behind a lot of corporate virtue-signalling behavior these days. Since these funds aren’t in the business of maximizing shareholder value, it makes an interesting fiduciary duty question. In many ways, it is a classic agency problem, where the incentives of managers an owners are different. Do index funds have a responsibility to maximize the value of the their funds even if they have to mimic the index? Investors should care about these sorts of shenanigans, but it is probably a touch too opaque to understand.

    I do think that this sort of stuff will tip the performance difference back towards active management. Skin in the game should outperform no skin in the game every day of the week.


  4. Those were the days.

    Liked by 1 person

  5. Present company excepted.

    Liked by 1 person

  6. How dare you evil racist sociopaths call us socialists and baby killers

    Liked by 1 person

    • Will our next president come from the third?

      There’s no chance Warren will be our next president. Bernie I can see. But Beto has a better chance than Warren.

      If she runs seriously, I bet there’s a lot more history of her cultural appropriation out there.



    This is the best [and most closely originalist] explication of the Establishment Clause I have read in years.

    Liked by 1 person

    • Mark:

      This is the best [and most closely originalist] explication of the Establishment Clause I have read in years.

      It’s pretty good, I agree. But a better, and even more originalist, approach would be to stop pretending that incorporation is implied by the due process clause, at which point the issue becomes very simple.


  8. Imagine, pumping up your base’s enthusiasm to help with your reelection campaign! I mean, have you ever?

    All right thinking people know the proper way to ensure your reelection is to weaponize the IRS against your opponents.


Be kind, show respect, and all will be right with the world.

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: