All Things in Moderation

Vital Statistics:

	Last	Change
S&P futures	3,967	1.25
Oil (WTI)	81.03	2.83
10 year government bond yield		3.77%
30 year fixed rate mortgage		6.58%

Stocks are marginally higher as we await Jerome Powell’s speech at the Brookings Institution. Bonds and MBS are down.

Fed Chairman Jerome Powell will speak at the Brookings Institution at 1:30 PM. I don’t see any prepared remarks on the Fed’s website. He will address the labor market, inflation and monetary policy. This will be the last week of Fed-speak ahead of the December FOMC meeting December 13-14.

The consensus seems to be that he will talk about slow and steady increases in rates and does not want to spook the markets one way or the other.

St. Louis Fed President James Bullard published an article that suggested the Fed Funds rate needs to rise to at least 4.9% in order to begin to impact inflation. “Results based on the latest trimmed mean PCE inflation rate, which is for September, suggested that it would take a policy rate of at least 4.9% to exert downward pressure on inflation. Thus, even under generous assumptions, the policy rate has not yet reached a level that could be considered sufficiently restrictive, according to these calculations.”

Third quarter GDP rose 2.9% in the third quarter, an upward revision from the initial 2.6% estimate. The PCE inflation indicator was revised up 0.1% to 4.3%. Exports, consumption and government spending were revised upward. Residential construction continues to remain a drag.

The economy added 127,000 jobs in November, according to estimates from ADP. The Street is looking for 200,000 jobs in Friday’s Employment Situation report. “Turning points can be hard to capture in the labor market, but our data suggest that Federal Reserve tightening is having an impact on job creation and pay gains,” said Nela Richardson, chief economist, ADP. “In addition, companies are no longer in hyper-replacement mode. Fewer people are quitting and the post-pandemic recovery is stabilizing.”

Leisure and hospitality added 224,000 jobs while manufacturing lose 100,000. The median pay change for job-stayers was 7.6%, while the median pay change for job-changers was 15.1%.

Job openings edged down by 350k to 10.3 million, according to the JOLTS jobs report. The quits rate declined to 2.6% from 2.7%. This means that more people are staying with their employers, which will act to reduce wage inflation.

Pending home sales fell 4.6% in October, according to the National Association of Realtors. “October was a difficult month for home buyers as they faced 20-year-high mortgage rates,” said NAR Chief Economist Lawrence Yun. “The West region, in particular, suffered from the combination of high interest rates and expensive home prices. Only the Midwest squeaked out a gain. The upcoming months should see a return of buyers, as mortgage rates appear to have already peaked and have been coming down since mid-November.”

Mortgage Applications fell 0.8% last week as purchases increased 4% and refis fell 13%. “Mortgage rates declined again last week, following bond yields lower,” said Joel Kan, MBA Vice President and Deputy Chief Economist. “The economy here and abroad is weakening, which should lead to slower inflation and allow the Fed to slow the pace of rate hikes. Purchase activity increased slightly after adjusting for the Thanksgiving holiday, but the decline in rates was still not enough to bring back refinance activity.” The MBA refinance index is at 22 year lows.

Filed under: Economy |