Morning Report: The services economy expands

Vital Statistics:

S&P futures3,997 12.50
Oil (WTI)77.46-0.70
10 year government bond yield 3.99%
30 year fixed rate mortgage 6.81%

Stocks are higher this morning despite more hawkish talk from central bankers. Bonds and MBS are flat.

The services economy expanded in February. “Business Survey Committee respondents indicated that they are mostly positive about business conditions. Suppliers continue to improve their capacity and logistics, as evidenced by faster deliveries. The employment picture has improved for some industries, despite the tight labor market. Several industries reported continued downsizing.”

The supplier deliveries index hit the fastest level since 2009, indicating that supply chain issues are mainly in the rear view mirror. The prices index declined, however it is still elevated. One respondent in IT said: “The current dynamics in the marketplace are such that it is getting harder to reduce costs. Most industries are being pinched by inflation and more expensive labor markets. Before, cost reduction was the goal; it’s now cost avoidance. That said, since we’re not able to reduce cost to maintain margins, we have to reduce the employee base more aggressively to achieve margins.”

Fed Governor Christopher Waller sounded hawkish in remarks yesterday: “I would be very pleased if the data we receive on inflation and the labor market this month show signs of moderation,” Fed governor Christopher Waller said in remarks posted on the Fed’s website. “But wishful thinking is not a substitute for hard evidence in the form of economic data. After seeing promising signs of progress, we cannot risk a revival of inflation.”

Nonfarm productivity rose 1.7% in the fourth quarter, according to BLS. This is a big downward revision from the initial 3% estimate. Output was revised downward while hours worked was revised upward. This is generally bad news for inflation, however we are talking about data that is getting pretty far in the past so I doubt it will influence the Fed all that much.

Unit labor costs rose 3.2%, which was driven by a 4.9% increase in compensation and a 1.7% increase in productivity. Manufacturing sector productivity declined 2.7%.

Fannie Mae updated its guidance on appraisals. The use of third-party data and models may now be used in some circumstances in lieu of an on-site appraisal. Fannie is changing the language from “appraisal waiver” to “value acceptance.” This should be good news for companies like Clear Capital who use technology to conduct valuations. DU will implement these changes on April 15.

UWM Corp (the parent of United Wholesale) reported fourth quarter numbers. Originations came in at $25.1 billion in the fourth quarter versus $33.5 billion in the third quarter and $55.2 billion a year ago. Gain on sale margins were more or less flat with Q3 at 51 bps.

The guidance for Q1 is for volume to come in between $16 and $23 billion, with gain on sale between 75 and 100 bps. This should translate into higher production revenue despite the drop in volume.

The Street sees Q1 earnings at breakeven and full year 2023 EPS at $0.20. Not sure how they continue to pay the $0.10 quarterly dividend. The stock yields 9.4%.

If you compare UWM’s numbers to Rocket’s it shows the vulnerability of Rocket’s model in a purchase environment. Rocket’s volumes were down much more dramatically, which shows it can dominate in a refi environment. Brokers, who are much closer to real estate agents, tend to capture more of the purchase business. You will ask your realtor for a lender recommendation in general. It will be interesting to see of Rocket’s ancillary services like Rocket Money will be able to capture some of that purchase business.

18 Responses

  1. This should be interesting:


  2. JFC.


  3. Mark sent me an email at Christmas.

    Also, wonder what you guys think about this stuff!

    If only Republicans had something other than drag shows to address

    Tennessee is ranked 36th overall for child well-being, according to the 2022 Kids Count Data Book put out by the Annie E. Casey Foundation. You know what didn’t cause that? Drag shows.

    Tennessee ranked 44th out of the 50 states in the 2022 America’s Health Rankings report by the United Health Foundation. Drag shows didn’t hurt anyone’s health.

    The state ranks 14th in the country for infant mortality, according to the U.S. Centers for Disease Control and Prevention. And not because of drag shows.

    Based on crime statistics from the FBI, Tennessee was ranked the fourth most violent state in the country in 2021. Drag shows had nothing to do with that.

    One in five children in Tennessee live in poverty. But yeah, definitely go after those drag shows.


    • Hi LMS!

      It sounds like Gavin Newsome is running for President. I have no knowledge of what the rating criteria is either. I do know revealed preference however, which state is growing in population and which state is losing population? Perhaps Gavin should address the loss of a Congressional seat before speaking out against other states.


    • lms:

      Whoever wrote/said that seems to be either confused or disingenuous. No one cares about about drag shows. What they are concerned about is drag shows for children.. How about you? Are you all good with drag shows for your grandchildren?


    • why is the left so obsessed with trying to push lgbtq ideology on kids?


  4. A couple of things here, Newsome is not running for President, our kids grew up with a very diverse group of family/friends and lots of rainbow colors so not really afraid of drag shows here as long as it’s in fun. On the other hand guns are something we save for hunting or target practice in my family. Never met a drag queen who killed a child……………guns, not so much!


    • lms:

      Never met a drag queen who killed a child

      S&M sex shows have never killed a child either. You cool with showing porn to your 6 yr old grandchildren now?

      It’s amazing to me what progressives will say to justify their increasingly bizarre and radical proclivities.


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