All Things in Moderation

Vital Statistics:

Stocks are up after China announced they will cut tariffs on about $75 billion in goods by mid-month. Bonds and MBS are flat.

Announced job cuts doubled in January, according to outplacement firm Challenger, Gray and Christmas. Note that this is generally a weak employment indicator, as it focuses only on announced job cuts in press releases, which may or may not happen. Separately, initial jobless claims fell to 202k.

Productivity rose 1.4% in the fourth quarter, while unit labor costs rose by the same amount. The Street was looking for a 1.5% increase in both. Manufacturing productivity fell by 1.2%, which probably was Boeing-related.

JP Morgan Chase is entertaining getting back into the FHA business. JP Morgan had scaled back their FHA lending because of “aggressive use” of the False Claims Act, which resulted in large fines, and basically made the business too risky. Talks are still at the initial stage, but appeared to have been driven by a Trump Administration policy that will not penalize lenders for immaterial errors. JPM CEO Jamie Dimon said that the Obama Administration’s use of the False Claims Act to extract massive penalties for underwriting mistakes wiped out a decade’s worth of profit for the business.

Punchy bet: There is a 70% chance of a recession in the next 6 months, according to a study by State Street and MIT. They fit a model based on industrial production, nonfarm payroll growth, the slope of the yield curve, and stock market returns. They looked at over 100 years of data and concluded that the current set of circumstances would see a recession within 6 months about 76% of the time. FWIW, this sounds more like a “gee-whiz, look at what our model predicts!” sort of scenario than a real forecast. For starters, the economy is much less sensitive to industrial production than it was a century ago. Second, the yield curve’s behavior is being manipulated by unprecedented action out of central banks. Financial repression (the name for the central bank’s mission to push rates lower) also is pushing money into the stock market. This sort of activity was unthinkable even 15 years ago, so historical comparisons should be treated with caution. In other words, take this survey with a boulder of salt.

Filed under: Economy, Morning Report | 30 Comments »