Morning Report: Manufacturing contracts

Posted on October 2, 2019 by Brent Nyitray

Vital Statistics:

 

Last Change
S&P futures 2924 -14.25
Oil (WTI) 53.85 0.24
10 year government bond yield 1.64%
30 year fixed rate mortgage 3.89%

 

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

 

Manufacturing contracted for the second month in a row, according to the ISM Manufacturing Survey. New orders, production, and employment all fell. Some of this is due to the trade wars, however overseas economic weakness is probably the dominant driver. Historically, this number on the ISM would correlate with GDP growth of 1.5%. In other words, the number isn’t signalling a recession, but it is pointing to a slowdown.

 

Mortgage Applications increased 8.1% last week as purchases increased 1% and refis increased 14%. “Mortgage rates mostly decreased last week, with the 30-year fixed rate dropping below 4 percent for the sixth time in the past nine weeks. Borrowers responded to these lower rates, leading to a 14 percent increase in refinance applications,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Although refinance activity slowed in September compared to August, the months together were the strongest since October 2016. The slight changes in rates are still causing large swings in refinance volume, and we expect this sensitivity to persist.”

 

Despite the issues in the manufacturing sector, Freddie Mac expects housing to to remain strong. Overall, government spending and business investment are probably going to decelerate, but this will be offset by a strong labor market and robust consumer spending. Note the uptick in originations. Freddie was initially anticipating this year would be more like $1.6 trillion.

 

Freddie Mac forecasts

 

Freddie is forecasting 1.9% GDP growth in Q3 and 1.8% in Q4. What is the risk to these numbers? To the downside, slowing global growth and perhaps political uncertainty – though the markets seem pretty blase about the impeachment drama. To the upside? Homebuilding. Note the strength in the homebuilder ETF (XHB), which has been on a tear. We are approaching the bubble highs, and as the Millennial Generation begins to start families and head to the suburbs, the builders will be busy addressing the dire shortage of starter homes. The post-bubble “new normal” of 1.3 million housing starts a year is anything but normal and we probably need 2 million just to satisfy pent-up and incremental demand.

 

XHB

 

ADP reported 135,000 jobs were created in September, which matches the estimate for Friday’s jobs report. Construction reported an increase, while mining and natural resources declined. The service sector continued to add jobs as well.

Filed under: Economy, Morning Report |

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17 Responses

  1. Let the mutherfuker burn!, on October 2, 2019 at 9:47 am said:

    There is a lot to enjoy in this post and it’s comments.

    https://m.dailykos.com/stories/1889421

    Like

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    • Brent Nyitray, on October 2, 2019 at 9:52 am said:

      the left’s biggest problem here is the “crying wolf” factor. After the Mueller whiff, nobody is watching their movie any more.

      This is Russian Collusion – The Director’s Cut.

      Liked by 1 person

      Reply
    • Kevin S. Willis, on October 2, 2019 at 2:34 pm said:

      That post is just fantasy, fact-free nonsense. And it was put in by the Daily Kos Staff!

      Maybe it’s just meant to be propaganda, but it’s sloppy.

      they should waste no time calling Barr to the Hill to testify on his recent activities.

      Nothing better to do that keep going after Trump and his folks. That’s apparently the whole point of having a congress–to prosecute any Republican presidents who cheat their way into office.

      Arrest Barr when he comes to congress to testify

      There is like zero difference between these folks and the Trump fans chanting “lock her up” at the rallies–which I’m sure these same people were appalled at.

      I would think there would be more awareness that after 3 years of fantasizing about Trump’s imminent arrest and possible execution, it’s no closer to happening now that it was then. And why don’t they spend more time about Trump losing the election and getting replaced by Warren or somebody? That seems . . . at least possible, in theory. But no.

      Arrest Barr! Trump must be impeached for treason! It’s a complete waste of time to search for partisan operatives in the deep state, so it totally shouldn’t happen, even though logically–as a good progressive–I should want Trump and Barr wasting their time on a wild goose chase! What, I want him at home cutting taxes and building up the military?

      Also, is there an exchange like this on every Kos/WaPo type post:

      We aren’t going to see any “charges” going against ANY politico…and make no mistake, Barr is a politico. It’s the same old story of dems and repubs protecting themselves…and being cahoots with each other in this effort. This has to change, folks.
      itsmystory October 02 · 08:42:53 AM recommend 2
      The Democrats and Republicans DO NOT approach these issues in the same manner and everyone needs to stop saying they do.
      IWWstrong October 02 · 09:22:19 AM

      They are very invested in pretending the GOP is full of politicians but their side is all idealists and superheroes.

      They look very similar to me in terms of tactics and operations and–as Trump’s election proved–sometimes actual policy. Narcissism of small differences, I guess.

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  2. Let the mutherfuker burn!, on October 2, 2019 at 10:31 am said:

    KosKidz are talking about Inherent Contempt again.

    https://m.dailykos.com/stories/1889483

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    • Kevin S. Willis, on October 2, 2019 at 2:21 pm said:

      In mid-September, former Trump campaign manager Corey Lewandowski sat down with the House Judiciary Committee and proceeded to mock representatives, make fun of the proceedings, stall, dodge, lie, and generally demean the Congress in every way imaginable.

      Uh-huh. They would have been cheering if the situation were reversed. They’d been saying they needed more Democrats who didn’t pull their punches when dragged in front of nonsense committees for partisan goals!

      Like

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    • Brent Nyitray, on October 2, 2019 at 12:15 pm said:

      as if the government knows enough about the industries they try to regulate that they can do their jobs without help…

      Like

      Reply
    • Kevin S. Willis, on October 2, 2019 at 2:08 pm said:

      I’m pretty sure this is just a tax. Not about stopping lobbying, it’s about getting more money out of them.

      She’s just putting forward one she thinks will be popular with the voters. Soften them up for all the taxes on sugar, vaping, entertainment, and breathing she’ll be putting forward once actually in office.

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  4. Brent Nyitray, on October 2, 2019 at 2:33 pm said:

    Speaking of EW, Mark Zuckerberg talks about her being an “existential” threat to FB and that he would “go to the mat” to fight her.

    https://www.marketwatch.com/story/facebooks-zuckerberg-says-he-would-go-to-the-mat-over-existential-threat-to-his-business-from-sen-warren-2019-10-01

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