Morning Report: Humphrey-Hawkins week

Posted on February 22, 2021 by Brent Nyitray

Vital Statistics:

 

  Last Change
S&P futures 3876 -26.3
Oil (WTI) 60.32 1.04
10 year government bond yield   1.35%
30 year fixed rate mortgage   3.00%

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

 

The upcoming week will have quite a bit of data, with the second estimate for fourth quarter GDP and housing prices. Jerome Powell will head to the Hill for Humphrey-Hawkins testimony on Tuesday and Wednesday. We will also get personal incomes and spending.

 

The CFPB is going on a hiring spree to ramp up enforcement. The CFPB has mentioned servicers as being an area of interest.

 

The Fed is worried about the state of small businesses. “Business leverage now stands near historical highs,” the central bank said in its semi-annual Monetary Policy Report to Congress. “Insolvency risks at small and medium-sized firms, as well as at some large firms, remain considerable.” Commercial Real Estate is one area of particular concern, especially urban office buildings and apartments.

The Fed noted that “Momentum slowed substantially in the late fall and early winter, however, as spending on many services contracted again amid a worsening of the pandemic. All told, GDP is currently estimated to have declined 2.5 percent over the four quarters of last year and payroll employment in January was almost 10 million jobs below pre-pandemic levels, while the unemployment rate remained elevated at 6.3 percent and the labor force participation rate was severely depressed.”

The note on spending is important. It seems that many people are using the stimulus payment to pay off credit card debt or other liabilities. Economically, there is a difference between saving and spending, and spending is what the Fed wants to see. If people are simply paying off debt instead, that is considered saving, and it has a much smaller effect on the economy. I suspect that will become a bigger headache for the central bank, and we have seen this movie before in Japan. An aging population, combined with low inflation means sluggish economic activity. Japan has wrestled with this state of affairs for decades.

 

The stimulus bill includes language to raise the minimum wage to $15. While that will make it through the House, the Senate is going to be a tough ride, with all Republicans and a couple Democrats opposing the hike. Given a 50-50 Senate, Democrats cannot afford any defections.

 

 

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