Morning Report: Prices jump in the latest ISM Manufacturing Report

Vital Statistics:

S&P futures3,967-7.00
Oil (WTI)76.52-0.53
10 year government bond yield 3.96%
30 year fixed rate mortgage 6.68%

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

The manufacturing economy improved in February, however it has contracted for the third consecutive month. New Orders and production contracted. Unfortunately, prices increased again which will concern the Fed. This will probably mean that February CPI and PPI reports will be disappointing.

“The U.S. manufacturing sector again contracted, with the Manufacturing PMI® improving marginally over the previous month. With Business Survey Committee panelists reporting softening new order rates over the previous nine months, the February composite index reading reflects companies continuing to slow outputs to better match demand for the first half of 2023 and prepare for growth in the second half of the year. New order rates remain sluggish due to buyer and supplier disagreements regarding price levels and delivery lead times; the index increase suggests progress in February. Panelists’ companies continue to attempt to maintain head-count levels through the projected slow first half of the year in preparation for a stronger performance in the second half.”

Rocket reported an 82% drop YOY drop in revenues during the fourth quarter of 2022. Origination volumes fell 75% YOY to $19 billion. Gain on sale margins also contracted to 2.17% from 2.8%. Unexpectedly high demand for the company’s promotional home purchase product was a driver of the lower margins.

“Last year marked a period of transformation for Rocket. We right-sized our business to respond to a challenging market; we also made key investments to serve our clients better on every step of their home ownership journey,” said Jay Farner, CEO of Rocket Companies. “With foundational pieces of our client engagement program in place, we are focused on expanding our top of funnel, lifting conversion and lowering our client acquisition cost, with the ultimate goal of growing our purchase market share and extending client lifetime value.”

Mortgage applications fell 5.7% last week as purchases fell 6% and refis fell 3%. The uptick in bond yields over the past few weeks drove the decrease. “The 30-year fixed rate increased to 6.71 percent last week, the highest rate since November 2022, which drove a 6 percent drop in applications. After a brief revival in application activity in January when mortgage rates dropped to 6.2 percent, there has now been three straight weeks of declines in applications as mortgage rates have jumped 50 basis points over the past month,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Data on inflation, employment, and economic activity have signaled that inflation may not be cooling as quickly as anticipated, which continues to put upward pressure on rates. Both purchase and refinance applications declined last week, with purchase index at a 28-year low for a second consecutive week. Purchase applications were 44 percent lower than a year ago, as homebuyers again retreat to the sidelines as higher rates crimp affordability. Refinance applications account for less than a third of all applications and remained more than 70 percent behind last year’s pace, as a majority of homeowners are already locked into lower rates.”  

The yield curve continues to invert, with the 10s-2s spread at -89 basis points. The last time we were at these levels was during the Volcker tightening regime during the early 1980s.

Construction spending fell 0.1% MOM and rose 5.7% YOY, according to the Census Bureau. Private residential construction fell 0.6% MOM and 3.9% YOY. There is a big divergence between multifamily, which is up 20.6% YOY and single-family which fell 18.4%. That said, single family construction is 3x the value of multi-family.

15 Responses

  1. Graham certainly knows his real constituency.


  2. Men proving once again they’re better at being women than actual women.


    • I was reading an article about some chick getting bent out of shape that Google searches for “International Men’s Day” spike on International Women’s Day.

      AFIK, there is no International Men’s Day.


    • Indeed..I see no mention of what it is that Fox is being accused of.


      • It’s been true from the get go re Trump. Assertions with emphasis and passion are enough apparently.


        • I read elsewhere that the accusation is that, on the air, various Fox hosts promoted the notion that Diebold voting machines changed votes to benefit Biden, despite the fact that, internal e-mails prove that those hosts didn’t actually believe it had happened. However, the on-air promotion of the theory apparently consists of nothing more than reporting that Trump and Trump representatives were making the claim. If uncritically reporting on claims made by politicians that turn out to be false is against the law, then every publication and journalist in the US is guilty.


  3. There’s truth in this and God help us all.


  4. Good piece, although as the author notes the Atlantic is part of the problem. This is spot on:

    “Although the guides refer to language “evolving,” these changes are a revolution from above. They haven’t emerged organically from the shifting linguistic habits of large numbers of people. They are handed down in communiqués written by obscure “experts” who purport to speak for vaguely defined “communities,” remaining unanswerable to a public that’s being morally coerced. A new term wins an argument without having to debate. When the San Francisco Board of Supervisors replaces felon with justice-involved person, it is making an ideological claim—that there is something illegitimate about laws, courts, and prisons. If you accept the change—as, in certain contexts, you’ll surely feel you must—then you also acquiesce in the argument.”


    • What I’ve described is not just a problem of the progressive left. The far right has a different vocabulary, but it, too, relies on authoritarian shibboleths to enforce orthodoxy.

      the far right has no such thing. and it is the progressive left that is authoritarian.


      • I never cease to be amazed at the need/desire of people to frame any criticisms of the left as a “pox on both your houses” critique. And to be honest I don’t even know who they are talking about when they refer to the “far right”.


        • The right does something wrong: “There is something wrong with the right.”

          The left does something wrong: “There is a problem with us”

          And I will bet that the only example the author can come up with is abortion and the term “pro-life”


        • Brent:

          And I will bet that the only example the author can come up with is abortion and the term “pro-life”

          And even with that example, the left’s attempt to frame the issue by altering language dwarfs any such attempt by the right. Just think about all of the euphemisms that the left has invented and uses to replace the simple term “abortion”. “Reproductive rights”, “choice”, “women’s health care”, “bodily autonomy”…these are all terms designed specifically to help the left elide what the they are actually arguing for.


        • The lack of any specific examples is telling.

          I think the author has to put that in as a disclaimer to get the article published in the Atlantic in the first place.


  5. This is really good:

    “The original conceit of the GEC was to gather pros from this world, who’d put their heads together and come up with kindler, gentler ways of “disrupting” ISIS propaganda. From the point of view of the Pentagon, which paid most of GEC’s original budget, it was a no-lose play: spending $70-$80 million a year was worth it if it meant even one fewer death in the field, be it of a U.S. soldier or a bystander to a drone strike.

    Then 2016 happened, and GEC’s mission changed on a dime.”


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

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