Morning Report: Small Business Reports higher prices

Vital Statistics:

S&P futures4,150-31.8
Oil (WTI)64.45-0.47
10 year government bond yield 1.61%
30 year fixed rate mortgage 3.10%

Stocks are lower this morning as the global tech stock sell-off continues. Bonds and MBS are down.

Small business optimism rose to a level of 99.8 in April, according to the NFIB Small Business Optimism Survey. Interestingly, the biggest problem for companies is finding qualified workers. 44% of companies reported having issues in hiring, which is a record. Companies are offering higher compensation and bonuses. On the inflation front, a net 36% of business owners reported increasing prices, which is the highest level since April 1981 when a net 43% reported raising prices. The big question is whether this is a temporary phenomenon, driven by COVID shortages or something more permanent.

Loans in forbearance fell again last week, declining 11 basis points to 4.36% of servicers’ portfolios. Private label loans were unchanged while government and GSE both fell. “The pace in the declining share of loans in forbearance quickened in the last week of April. This 10th week of decreases reflected a faster rate of exits and a steady, low level of new requests,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “Homeowners who have exited forbearance and been able to take up their original payment again are performing at almost the same rate as the overall mortgage servicing portfolio.”

Mortgage credit expanded in April, according to the MBA. “Credit availability rose in April, fueled by a 5 percent increase in conventional mortgage credit, as well as an expansion in agency programs for ARMs and high-balance loans,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “The uptick in credit supply comes as the housing market and economy continue to strengthen. One trend that has developed in recent months is the rising demand for ARMs, driven by higher rates for fixed mortgages and faster home-price appreciation.” 

Despite the new limits out of Fannie and Fred, demand for second homes is more than double pre-pandemic levels. “The combination of the wealthy becoming wealthier, remote work turning into the new normal and low mortgage rates is creating an ideal environment for affluent Americans to buy vacation homes,” said Redfin Chief Economist Daryl Fairweather. “As long as the economy continues to grow, I don’t foresee demand for second homes slowing down anytime soon.” In seasonal towns, home prices are up a whopping 27%.

Dallas Fed President Robert Kaplan thinks the job market will strengthen this year and we should be ready to discuss tapering bond purchases soon. “Discussion is healthy, again sooner rather than later, because of these, maybe, side effects or even in some cases unintended consequences,” Kaplan said on Bloomberg TV, noting “excesses and imbalances” in financial markets including a sharp rise in house prices with private investors increasingly squeezing out families. “I hope at some point here in the not too distant future we can begin discussing this.”

One of the biggest quandaries for business and economists revolve around the disconnect between what employers say about the availability of labor and the unemployment numbers. Policymakers and the Fed are pulling out all the stops trying to support the labor market, believing that we have a major labor problem. At the same time finding qualified workers is the biggest problem for business. Wages are increasing, but jobs are not getting filled. What is going on?

If you ask the left, they will say that business owners are being greedy and they need to be forced to increase wages via higher minimum wage laws. If you ask the right, they will say that unemployment insurance is acting as a disincentive to work. I suspect that there is still a large number of people who are worried enough about COVID that they would rather stay home and avoid working. As more of the population gets vaccinated that number should fall.

Below is a chart of inflation versus productivity. Productivity determines real wage growth, although wages do correlate with inflation. Take a look at where inflation was in 1981, the last time the NFIB Small Business Survey reported this number of businesses raising prices.

To me, the big takeaway from the chart above is that inflation cycles are long and I don’t think we are headed back to the 1970s. That said, global central banks are working overtime trying to create inflation (and have engineered a sovereign debt bubble in the process). Given that COVID will create all sorts of statistical noise over the next year, I would be reluctant to buy into the inflation story quite yet.

18 Responses

  1. Good read. NoVA you should check this out.


    • The villain of Lewis’s story is not Donald Trump; it’s the Centers for Disease Control and Prevention. The argument laced through the book is that the C.D.C. was too passive, too unwilling to act on uncertain information, too afraid of making mistakes, too interested in its public image. What we needed was earlier shutdowns, frank public messaging, a more decentralized testing regime, a public health bureaucracy more willing to stand up to the president.

      Most of these things seem entirely opposite of the case to me. More decentralized testing regime? Sure. Frank public messaging (that included clarity about what is just unknown–do masks help? “They may, we don’t have any data on that” is a perfectly legitimate answer). I didn’t emphasize but I’m not even sure passivity was the problem with the CDC. The idea that the CDC should be able to be more active with little-to-no data is not appealing to me.

      That said I don’t think I can bring myself to listen to Ezra Klein speaking. I find it about impossible to listen to Matt Taibbi.


      • I didn’t listen to Juice Box, did they discuss which requests of the CDC Trump did not implement? I mean he needlessly cratered the economy for these cocksuckers, for fucks sake. Or is it just the reflexive Orange Man Bad?


        • It’s not. I read the transcript rather than listen. It’s about Michael Lewis’ new book on it which targets the CDC as the main villain. It’s a thorough history of how things got here going back to 1976.

          I don’t bother linking “Orange Man Bad” stuff here. If I link it, it’s not the usual MSM BS.


        • I didn’t think you did re OMB stuff, it’s just that lefties have a tendency to reflexively say OMB even if there are other predominant factors, as a way to signal I guess even if they then go on to discuss the other factors. It gets tiring. Thanks for the link and I’ll read the transcript.


        • Oh, there’s some throwaway virtue signaling along the lines of “of course Trump made it worse”, but it’s not the central focus.


      • “More decentralized testing regime? Sure.”

        That’s about the CDC insisting on making it’s own test, which it failed to do, and simultaneously the FDA banning all other tests.


      • “That said I don’t think I can bring myself to listen to Ezra Klein speaking.”

        Easy way to avoid that is just to click on reader view in your browser on the page. Brings the transcript right up.


    • Also I don’t really agree with the premise that the United States failed so miserably in the face of the pandemic.

      A few specific states failed miserably in very specific areas: isolating the most vulnerably (intuitively, and in fact) people: the elderly in nursing homes.

      But on the whole we outperformed some places and were on par with most others. A few cases people did much better, thanks to a contact-tracing-and-testing regime and–importantly–being a country with a MUCH more homogenous culture than the US. And possibly governments that enjoyed more trust with the general public. But the idea that the government should earn trust before implementing draconian measures (while also having zero trust for the citizens they are ruling) seems foreign to most of the folks excited about the government micromanaging everybody at every level because of pandemics.

      But the worst part of the global response, IMO, has been the hysteria (and the concomitant censorship, shouting down, intentional lying, exaggeration of expertise, inability to admit what you don’t know, treating skeptics like lepers, and feeling it important to silence dissent because “people might get the wrong idea”). A proper response would have been to ban travel from China and other countries earlier, beef up the southern border, recommend a national lockdown on nursing homes and provide guidance for social distancing and possibly mask wearing around the elderly. And an operation Warp Speed. Trapping everybody at home and crushing any number of small businesses was destined to be a cure worse than the disease at many levels, and as the MSM gets more comfortable with COVID being in the distance, the more of that is going to come out, I expect.

      But the whole idea that the US is uniquely awful (but would should I expect from the NYT?) in pandemic response is just wrong. The whole world went crazy, and most everybody has horror stories about deaths and case surges and so on. And elite politicians everywhere decided to live by their own set of the rules while requiring much more draconian rules apply to the peasants. Also not uniquely a US thing.

      Meh. Ezra.


      • The biggest omission from my point of view is the impact of CDC & politicians lying and playing politics with mask & crowd size recommendations.


    • couldn’t have possibly been the fact that the left shamed anyone who protested for re-opening the economy while enthusiastically seal-clapping for BLM riots.


  2. Lol


    • That this is their only outlet and that they think they are relevant is testimony to the opposite.

      How many “Goodbye cruel world(‘s)” are we going to have to endure?


      • Way too many. There’s a serious split in the Republican party that started with the Tea Party (indeed, I think some of this is they feel they were too “welcoming” of the Tea Party, and also that the Trump-phenomenon is too diffuse and difficult to control).

        There are Republicans who are all pro-American, pro-worker, populist (or think that’s the winning strategy, whether they sincerely believe it is always another question with politicians) and Republicans who like to “lose with dignity” while getting positive write-ups in the NYT and WaPo, speaking gigs at major banks and defense contractors, and want an easy path to future book contracts. And there are now a lot of both.

        And I’m pretty sure the establishment GOP is on the losing end of this equation, long term. Meaning specifically the ones who think even pretending they don’t hate Trump and, like Liz Cheney, go out of their way to say 2020 was super-secure and that everyone who thinks the election was off and there was maybe an unusual amount of fraud are basically terrorists.

        I’m planning on voting a straight Republican ticket in 2022 no matter how awful the Republicans in question are, based on my 20,000 ft view that I’d like a sane Democratic party and one way to make it a little saner is for them to lose far beyond their worst nightmares. I only have one vote to contribute to that vision, but contribute it I will.

        If things were different I’d be entirely content to vote 3rd party in every contest. But that’s just me. Many Republicans may feel it is time to stop voting for Republicans if they are establishment shills. Which is fair.


      • Oh wow. How will they ever survive losing 100 people.


        • It’s what they often call “concern trolling” on the political message boards. Heard that term a lot on PlumLine.

          They’d love to see all Republicans split with the GOP so this article doesn’t exist because they are trying to provide information. Hoping (not rationally, I don’t think) to plant the idea with the right people that somehow getting someone who keeps trying to alienate 74 million American voters in a leadership position would be healthy for the GOP.

          A lot of the establishment GOP is right with her there in spirit. They just want her to shut up about it and move on, and her ejection is entirely about her pushing them to do it when they had no particular desire to do so. The GOP cannot afford to be the anti-Trump party–and it’s surprising to me how many smart pundits actually seem to believe that it MUST become the anti-Trump party or it has no hope . . . after 74 million people voted for Trump in 2020. You can’t tell all those voters to fuck off and then magically replace them with NeverTrumpers who will decide to vote for them instead of Democrats next time around because Mitt Romney and Jeb Bush are back in charge!

          I expect the vast majority of the establishment GOP do not substantively disagree with Cheney, and I expect most of them don’t like Trump and never did. But they understand their political future does not lie in constantly badmouthing Trump, calling people who think the election was stolen kooks and un-American and domestic terrorists, and mouthing ideas about vague “conservative principles” while appearing to practically side with the current Democratic administration.

          Although I have no doubt the editors at the NYT would prefer a strong two party system, one with a left-leaning, largely progressive Republican party in opposition to a super-left leaning, ultra-progressive Democratic party. Balance!


    • While I still consider Twitter an irredeemable cesspool and a cancer upon not just the body politic but humanity itself . . . today, for one brief moment, Twitter has been redeemed with that tweet.


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

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