Morning Report: Strong jobs report

Vital Statistics:

 LastChange
S&P futures4,54010.2
Oil (WTI)99.24-1.79
10 year government bond yield 2.44%
30 year fixed rate mortgage 4.79%

Stocks are lower this morning as we start off the second quarter. Bonds and MBS are down.

The economy added 431,000 jobs in March, according to the Employment Situation Report. The unemployment rate slipped 0.2% to 3.6%, which the labor force participation rate was flat at 62.4%, which is still below pre-pandemic levels. Jobs grew the most in leisure / hospitality and professional / business services. Average hourly earnings rose 5.6%, which is below headline inflation, and implies that real (inflation-adjusted) wages are falling.

Personal incomes rose 0.5% MOM in February, according to the Bureau of Economic Analysis. The personal consumption expenditures (PCE) inflation index rose 0.6%. On a year-over-year basis, the headline PCE index rose 6.4%, and ex-food and energy it rose 5.6%. This index is the Fed’s preferred measure of inflation, and this is the fastest pace since 1983.

The ISM Manufacturing Index fell 1.5 points in March. “The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment. In March, progress was made to solve the labor shortage problems at all tiers of the supply chain, which will result in improved factory throughput and supplier deliveries. Panelists reported lower rates of quits and early retirements compared to previous months, as well as improving internal and supplier labor positions. March brought back increasing rates of price expansion, due primarily to instability in global energy markets. Suppliers are not waiting to experience the full impacts of price increases before negotiating with their customers. Panel sentiment remained strongly optimistic regarding demand, with six positive growth comments for every cautious comment, down from February’s ratio of 12-to-1. Demand expanded, with the (1) New Orders Index remaining in growth territory, supported by weaker growth of new export orders, (2) Customers’ Inventories Index remaining at a very low level and (3) Backlog of Orders Index continuing in strong growth territory.

Consumption (measured by the Production and Employment indexes) grew during the period, though at a slower rate, with a combined minus-0.6-percentage point change to the Manufacturing PMI® calculation. The Employment Index expanded for a seventh straight month; panelists indicate their ability to hire continues to improve, to a greater degree than in February. Challenges with turnover (quits and retirements) and resulting backfilling continue to plague panelists’ efforts to adequately staff their organizations, but to a lesser extent compared to February. Amid signs of staffing and supplier delivery improvements, production expanded at disappointing levels, likely due to timing issues. Inputs — expressed as supplier deliveries, inventories, and imports — continued to constrain production expansion.”

House prices rose over 20% YOY, according to the Clear Capital Home Data Index. The West and the South are experiencing the fastest home price appreciation, while the Midwest and Northeast lag. The fastest growing MSAs include places like Nashville and Phoenix. I have to imagine that as remote working takes off, more companies will relocate to where it is cheaper. IMO, it kind of explains why the Motor City became the Mortgage City.

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