Morning Report: Lending standards tighten

Vital Statistics:

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

Banks reported tightening credit standards and weakening demand in the latest Federal Reserve Senior Loan Officer Survey.

“Regarding loans to businesses, survey respondents reported, on balance, tighter standards and weaker demand for commercial and industrial (C&I) loans to large and middle-market firms as well as small firms over the first quarter.2 Meanwhile, banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories.”

“For loans to households, banks reported that lending standards tightened across all categories of residential real estate (RRE) loans other than government-sponsored enterprise (GSE)-eligible and government residential mortgages, which remained basically unchanged. Meanwhile, demand weakened for all RRE loan categories. In addition, banks reported tighter standards and weaker demand for home equity lines of credit (HELOCs). Standards tightened for all consumer loan categories; demand weakened for auto and other consumer loans, while it remained basically unchanged for credit cards.”

Small Business Optimism fell again in April, according to the NFIB. The is the sixteenth consecutive reading below the historical average. Quality of labor is the biggest concern, with manufacturing, construction and transportation showing the biggest shortages. Inventories now are too high relative to expected sales. Inflation seems to be waning.

A banking crisis does not appear to be a major risk. The bank failures were not due to bad loans, the usual cause. Defaults will rise as the economy weakens but hopefully not at pandemic levels. The manufacturing sector appears to be in contraction (ISM <50). The service sector is still in growth mode, but much weaker (ISM 51.2, down 3 points). Main street firms have been pessimistic for the last 18 months, with the NFIB Optimism Index at 89 (49 year average = 98). Price raising activity has slowed but remains historically high, and reports of higher labor compensation are sticky at historically high levels. This will make inflation sticky as labor costs are the major operating cost of small firms, especially in the service sector. The economy seems inclined to slow down and this will make raising prices harder and slow inflation. Maybe it’s time for the Fed to pause and let nature (markets) take its course.

Rate lock volume fell 22% in April, according to Black Knight. Part of this is due to more business days in March, however volumes fell 10% even after taking this into account. Overall lock volumes rose 14% over the past 3 months, however they are down about 50% from a year ago.

“Home prices rose a seasonally adjusted 0.45% in March at the national level,” said Walden. “A modest bump in homebuyer demand ran headlong into falling for-sale supply, leading to the third consecutive monthly increase in home prices after they’d been pulling back from recent peaks through the tail end of 2022, essentially nationwide. In fact, just five months ago, prices were declining on a seasonally adjusted month-over-month basis in 92% of all major U.S. markets. Fast forward to March, and the situation has done a literal 180, with prices now rising in 92% of markets from February. Despite the home price strengthening of these past couple of months, the backward-looking annual growth rate continued to cool as the influence of the red-hot spring 2022 market fades in the rearview mirror. Prices are now up just 1.0% year over year, with the annual growth rate on track to fall to roughly 0% by April.  That said, low inventory levels will limit just how far that metric will fall in coming months.”

19 Responses

  1. You see this Brent?

    “Landlords Want the Supreme Court to Kill Rent Stabilization”

    https://www.curbed.com/2023/05/landlords-supreme-court-rent-stabilization-challenge.html

    Like

    • Popehat on it.

      “Josh Barro:
      So, do you think it’s likely that Carroll is going to win this suit?

      Ken White:
      Juries man, I don’t know. I think 10 years ago I would’ve said no. Now, I think yes, it’s likely, but not certain.”

      https://www.serioustrouble.show/p/a-detailed-explanation-of-the-rule#details

      This struck me as interesting:

      “Ken White:
      I think that’s going to the argument that it was so extraordinary that there’s no way she wouldn’t report it or that we wouldn’t hear about it for 30 years. Josh, I figured if I’m going to tell Mitch that he’s wrong, it’s only fair I give him a chance to rebut and defend himself. So, I reached out and asked him to record something about how he would’ve handled that cross examination better.

      Mitch:
      Hi, Ken and Josh. Here are the three areas that I think would’ve been fruitful areas to go into. First, her work as a script writer. You stated that you were a writer for Saturday Night Live, correct? And that was before in 1995, correct? Now, being a comedy writer requires imagination, correct? It requires understanding how an audience will receive material, isn’t that correct? It requires being able to imagine a plausible situation that will be accepted by an audience, true? And you were good at it, weren’t you? Your work was nominated for an Emmy, isn’t that true? And it’s hard to get a job as a writer for Saturday Night Live, correct?

      Second area, Hunter S. Thompson. Ms. Carroll, Hunter S. Thompson was an important figure in your life, correct? You actually wrote a biography about him, true? The title was Hunter, the Strange and Savage Life of Hunter S. Thompson, correct? Now, Hunter S. Thompson was famous for creating gonzo journalism, isn’t that true? One key attribute of gonzo journalism was that the author would put themselves at the center of the story, correct? And, for example, when Hunter S. Thompson wrote his book on the Hell’s Angels motorcycle gang, he put himself in the middle of the story, true? And this was different from usual journalism where the author would do a lot to keep themselves out of the story, correct? Now, and another aspect of gonzo journalism was that the author would sometimes include fantasy sequences that never occurred, correct? When you wrote your biography of Hunter S. Thompson, you engaged in your own gonzo journalism, correct?

      You interspersed chapters of interviews about Thompson with people who actually knew him with gonzo chapters of Hunter S. Thompson interacting with a fictional writer, correct? And that fictional writer was based on you, true? And those gonzo chapters included Hunter Thompson sexually abusing the character that was based on you, correct? That was fiction. That never happened, did it?

      Third area, work for Roger Ailes at the America’s Talking cable network. Ms. Carroll, you worked for Roger Ailes at the America’s Talking cable network in the mid ’90s, correct? You were trained while you were there on how to project authenticity, true? You were trained on how to project honesty, correct? You were trained on how to draw an audience into a story, true? Now, you never accused Roger Ailes of sexual harassment, correct? And you never accused Roger Ailes of rape, correct? And finally, you never served as a witness for anyone who accused Roger Ailes of sexual misconduct, correct? So, if I had been given Joe Tacopina’s opportunity, that is how I would have done it, or at least some of it.”

      Like

      • They’ll always be second guessing and the line of questioning seems reasonable. The interesting aspect of the trial was how hostile the judged seemed to Trump and Tacopaina. My perception though was that Trump was always going to lose no matter what, even if there was film of every second of Bergdorf’s going back to 1980 with zero Trump/Carroll interaction. I suspect that none of us doubted the outcome.

        Like

  2. Is the framing wrong?

    Like

    • The jury didn’t find that Carroll lied about being raped by Trump. It found that there wasn’t sufficient evidence to prove that he did, but did find that he committed sexual assault. He was also found guilty of defaming her by saying that nothing happened at all, not just that he didn’t rape her.

      In order to say that a jury found that she lied, Trump would have to file his own defamation suit against her and she would have to lose.

      Like

      • jnc:

        It found that there wasn’t sufficient evidence to prove that he did, but did find that he committed sexual assault.

        I haven’t really followed this case at all, but what evidence existed with regard to the sexual assault charge that did not exist with regard to the rape charge? I thought the only evidence that existed at all was her word, along with contemporary reports that she made to friends at the time.

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        • I think that’s correct. Since this was a civil trial, she only needed to meet a standard of “preponderance of the evidence”.

          Like

        • jnc:

          I think that’s correct.

          If that is true, ie that the only evidence available was her own word (both current and contemporary), then I think it must be the case that the jury’s verdict on any given charge can only be a reflection of whether or not the jury thought she was telling the truth. Hence, on the charge for which they ruled in Trump’s favor, they must have thought she wasn’t telling the truth. Otherwise they would have ruled in her favor, as they did on the other charges.

          Like

  3. Pretty good get for Musk here.

    Curious as to his FOX contract, is Musk taking care of it? Paying for lawyers? What?

    Like

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