Morning Report: Inflation comes in as expected.

Posted on October 27, 2023 by Brent Nyitray

Vital Statistics:

Stocks are higher this morning after good numbers from Amazon. Bonds and MBS are down small.

Personal Incomes rose 0.3% in September, while spending rose 0.7%. The PCE Price Index rose 0.4% MOM which was 0.1% above expectations. On an annual basis, the PCE Price Index rose 3.4%, which was in line with expectations. If you strip out food and energy, the PCE Price Index rose 0.3% month-over-month and 3.7% year-over-year. The savings rate declined again.

Consumer sentiment fell in October, according to the University of Michigan Consumer Sentiment Survey. “Consumer sentiment confirmed its early-month reading, falling back about 6% this October following two consecutive months of very little change. This decline was driven in large part by higher-income consumers and those with sizable stock holdings, consistent with recent weakness in equity markets. Across all consumers, one-year expected business conditions plunged 16% and expectations over consumers’ own personal finances in the year ahead fell 8%, reflecting ongoing concerns about inflation and, to a lesser degree, uncertainty over the implications of negative news both domestically and abroad.” Inflationary expectations increased substantially, rising from 3.2% in September to 4.2% in October.

So consumption is strong, but the consumer is depressed. What is going on? Yesterday’s GDP report provides a bit of a clue. Much of the increase in consumption was accounted for by housing, insurance, and health care. These are necessities, not discretionary goods, and no one gets a dopamine hit from writing a bigger check to the landlord or flood insurance company.

After the data this week the Fed Funds futures are predicting the Fed does nothing at its meeting next week, and is handicapping a 16% chance of a hike in December.

The number of seriously delinquent mortgages dropped to an all-time low in August, according to CoreLogic. “U.S. mortgage performance remained strong in August, supported by a robust job market and a healthy economy,” said Molly Boesel, principal economist at CoreLogic. “However, this thriving job market comes at a time when interest rates are quickly rising, which is keeping many potential homebuyers from being able to secure a mortgage.”

This partially explains why servicing valuations remain so high. Prepayment assumptions assume that people will only pay off their mortgage if they move or die, delinquencies are low, and short term rates are high enough that you can earn interest on escrow. PennyMac Mortgage Trust said in its earnings release that it is valuing its MSR portfolio at 6.3x.

Filed under: Economy |

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25 Responses

  1. Let the mutherfuker burn!'s avatar
    Let the mutherfuker burn!, on October 27, 2023 at 1:13 pm said:

    My theories for all the Mark Meadow’s leaks coming out of the DOJ are that they want Trump to lash out publicly to push for more gag orders as well as piss off Meadows. I’m guessing Meadows is a reluctant, hostile witness and they want him to be enthusiastically anti Trump.

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  2. Let the mutherfuker burn!'s avatar
    Let the mutherfuker burn!, on October 27, 2023 at 2:02 pm said:

    I know Brent’s going to go on about Planet Caravan being the best bongo song but this cover of the Yardbird’s For Your Love – the best bongo song out there – is pretty solid.

    Humble Pie was a pretty hard rocking band but they often did an acoustic set before they plugged in.

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  5. lmsinca's avatar
    lmsinca, on October 30, 2023 at 8:50 pm said:

    This is what happens when you raise a scientist who not only paid her dues in the oil industry……completely credited with both exploring and developing the Powder Basin in the mountain states, but also has an ear on the ground with carbon sequestration and environmental concerns……………10 years later………..she’s……………the lead developmental geologist for Koloma. She worked so hard to be in the here and now with alternative energy sources while acknowledging at the same time the importance of fossil fuels. Another woman who can hold two competing thoughts in her head at the same time.

    “Some startups are seeing eye-popping investments. Koloma, a Denver-based white hydrogen start-up, has secured $91 million from investors, including the Bill Gates-founded investment firm Breakthrough Energy Ventures – although the company remains tight-lipped about exactly where in the US it is drilling and when it is aiming for commercialization.”

    https://www.cnn.com/2023/10/29/climate/white-hydrogen-fossil-fuels-climate/index.html

    https://koloma.com/team/

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    • Let the mutherfuker burn!'s avatar
      Let the mutherfuker burn!, on October 30, 2023 at 8:54 pm said:

      You are obviously proud of your daughter. Congratulations to her on her success.

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      • lmsinca's avatar
        lmsinca, on October 30, 2023 at 9:06 pm said:

        Thanks McWing………….super proud obviously and her boys are so smart too. The 5 (almost 6) year old is already in a robotics class and wants to be an inventor. He’s doing simple algebra……………LOL He’s shy but super smart and the little guy (2 1/2) is the daredevil in the family.

        I’ve tried to start a few political conversations here but generally Brent just shuts me down so I’m leaving this place to him. No room for a moderate independent here any more!

        I still read all the outrageous comments you guys post but don’t feel welcome to participate.

        Take care though……….I think fondly of this place occasionally……………..at least when I’m not actually here……………uggghhhh

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