Morning Report: Payroll growth falls in March

Vital Statistics:

S&P futures4,125-7.75
Oil (WTI)80.49-0.25
10 year government bond yield 3.32%
30 year fixed rate mortgage 6.27%

Stocks are lower this morning on renewed recession fears. Bonds and MBS are up.

Private employers added 145,000 jobs in March, according to the ADP Employment Report. This was lower than the 200,000 expectation, and is well below the 240,000 forecast for Friday’s payroll number. Annual pay increased for job stayers by 6.9%, while people who switched jobs saw a 14.2% increase. “Our March payroll data is one of several signals that the economy is slowing,” said Nela Richardson, chief economist, ADP. “Employers are pulling back from a year of strong hiring and pay growth, after a three-month plateau, is inching down.”

Leisure / hospitality was the biggest gainer, with 98,000 jobs, while we saw declines in finance and professional / business services. Manufacturing also fell. That said, the softening of the labor market looks to be occurring in the white collar sectors, not the blue collar sectors.

Still the pay increases, especially in services ex-housing will be a thorn in the Fed’s side. Look at the pay increases for leisure / hospitality – pushing 10%.

Mortgage applications fell 4.1% last week as purchases fell 4% and refis fell 5%. “Spring has arrived, but the housing market is missing the customary burst in listings and purchase activity that typically mark the season. After four weeks of increasing purchase application activity, volume declined a bit this week even with another small drop in mortgage rates,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Additionally, refinance application volume continues to be quite low. Although the mortgage rate for conforming balance loans declined by five basis points over the week to 6.40 percent, the mortgage rate for jumbo loans increased by nine basis points to 6.36 percent.  While we have seen relative weakness at the high end of the housing market in recent months, the divergence in rates suggests that banks may be tightening credit in response to recent challenges, preserving balance sheet capacity as deposit balances have declined. In recent years, most jumbo loans have been kept on depository balance sheets.”

Conforming versus jumbo rates YTD:

Jamie Dimon put out his annual shareholder letter yesterday, and discussed the banking crisis, which he says is not over.

Regarding the current disruption in the U.S. banking system, most of the risks were hiding in plain sight. Interest rate exposure, the fair value of held-to-maturity (HTM) portfolios and the amount of SVB’s uninsured deposits were always known – both to regulators and the marketplace. The unknown risk was that SVB’s over 35,000 corporate clients – and activity within them – were controlled by a small number of venture capital companies and moved their deposits in lockstep. It is unlikely that any recent change in regulatory requirements would have made a difference in what followed. Instead, the recent rapid rise of interest rates placed heightened focus on the potential for rapid deterioration of the fair value of HTM portfolios and, in this case, the lack of stickiness of certain uninsured deposits. Ironically, banks were incented to own very safe government securities because they were considered highly liquid by regulators and carried very low capital requirements. Even worse, the stress testing based on the scenario devised by the Federal Reserve Board (the Fed) never incorporated interest rates at higher levels. This is not to absolve bank management – it’s just to make clear that this wasn’t the finest hour for many players. All of these colliding factors became critically important when the marketplace, rating agencies and depositors focused on them.

It is fascinating that the Fed’s stress tests didn’t envision that an environment of rising interest rates could cause trouble given that this was precisely the situation in the 1970s that was the impetus for banking deregulation and the S&L crisis in the 1970s.

As he points out, this is not going to be a replay of 2008 – we are talking about Treasuries and MBS, which are money good. The ultimate recovery on these bonds is par, not something like 50 or 60. Silicon Valley Bank made an interest rate bet and was wrong,or more charitably, early.

Jamie Dimon goes on to talk about the necessity of the regional banks, and it is clear that JP Morgan isn’t interested in taking over a bunch of deposits fleeing the regional and smaller banks.

19 Responses

  1. Popehat on the indictment:

    “Nearly 30 years ago, federal judge William Matthew Byrne Jr. — who famously presided over the Daniel Ellsberg Pentagon Papers trial — hollered at me for about 10 minutes for bringing a 21-count grand jury indictment for fraud. He accused me of piling on counts so I could impress women in bars. At the time, I thought the criticism was unfair (and that Judge Byrne’s grasp of what women want was somehow worse than mine). Now I realize that gratuitous count-padding is performative and time-wasting. Prosecutors do it because it works — how many breathless references to 34 counts did you read this week?”


    • The judge and jury will get excommunicated from polite society if they don’t come back guilty.

      The legal particulars are irrelevant.


  2. Dude’s in my head.


  3. Gotta love Elon:

    “Twitter slaps NPR with a dubious new tag: ‘State-affiliated media’
    The public broadcaster has protested the decision, which lumps it into a category with several notorious propaganda outlets

    By Paul Farhi
    April 5, 2023 at 11:55 a.m. EDT”


  4. I literally just noticed this:


    • Scott and Brent, does NY State have a state income tax?


      • Yes, and if you live in NYC there is a NYC income tax.


        • So if DJT mischaracterized his loan repayment to Cohen as a deductible expense and never amended that before the indictment there might be an easier path for the DA in front of a jury. That’s the kind of mischaracterization that often causes indictments under the NY statute.

          Weisselberg is already convicted of running down that path. Maybe he will take the heat on this one at trial for Trump.


        • Mark:

          That’s the kind of mischaracterization that often causes indictments under the NY statute.

          But he has not been indicted with that.

          Undoubtedly, though, if one is intent on getting Trump for something, something can be found to get him.


        • if one is intent on getting Trump for something, something can be found to get him.

          Thank you Lavrenty Baria


        • Show me the man and I’ll show you the crime


        • Mark, this is the only detailed write up I’ve seen of the tax angle.

          “The charges against Trump do not include any tax fraud offenses that some legal experts said they hoped to see to buttress the seriousness of the case. However, the statement of facts Bragg filed along with the indictment makes a surprising claim: that Trump and his associates engaged in deception by paying New York state more in taxes than it was owed.

          “The participants also took steps that mischaracterized, for tax purposes, the true nature of the payments made in furtherance of the scheme,” the statement says.

          It alleges that Trump paid an increased reimbursement to Cohen — a procedure known as “grossing up” the payment — in order to compensate him for the taxes he would owe by booking the money as legal fees.

          These alleged contortions resulted in Cohen paying about $180,000 in state and federal income taxes, when he may have not owed anything if Trump had simply reimbursed him for the $130,000 and the payment had been properly recorded. That’s because the reimbursement of money Cohen already paid to Daniels wouldn’t have represented income for Cohen.

          But recording the money, falsely, as legal fees subjected Cohen to significant income-tax liability — meaning that any trickery the men engaged in may actually have benefitted state and federal coffers. That may be why Bragg’s team doesn’t deem the practice “fraud,” and why no tax fraud or evasion charge was included in the indictment.”

          It would be an interesting precedent if they are charging him with fraud for overpaying what he actually owed in taxes:


        • Wow.


        • Lol! They’re not even pretending.


        • jnc:

          It would be an interesting precedent if they are charging him with fraud for overpaying what he actually owed in taxes

          Hence my question from yesterday morning: Is it really a crime in New York to overstate one’s income resulting in too much tax paid?

          But to be clear, even if the “other crime” referenced in the indictment but which Bragg specifically declined to identify is tax fraud, they are not charging Trump with that. They are charging him with conspiring to hide that crime through false book entries. Now Cohen did in fact plead guilty to tax fraud, but he pled guilty to evading taxes that had nothing to do with the Stormy Daniels payment, not with paying income taxes when none were due. So if this is the “other crime” that was supposedly being hidden, it is a crime that literally no one has been charged with, much less had guilt proven.

          Having said all that, it really makes little sense to argue this on the merits, as if it is a good faith indictment. The facts of the case or the coherence of the indictment do not matter. The point is not to enforce the law. The point is to charge Trump and put him on trial, hopefully with a NY jury that will convict him of whatever thin gruel is spoon fed to them.


        • Having said all that, it really makes little sense to argue this on the merits, as if it is a good faith indictment.

          Precisely. It is no different than the Russian Collusion Hoax.


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