BLS Report for April 5/6/16

Payroll employment increases by 160,000 in April; unemployment rate unchanged at 5.0%


Total nonfarm payroll employment increased by 160,000 in April, and the unemployment rate was unchanged at 5.0 percent. Employment increased in professional and business services, health care, and financial activities. Job losses continued in mining.

Texas Will Survive the Oil Glut, Thank You.

Screwing with Putin by killing the profits of the petro-state does not seriously threaten Texas, according to this Federal Reserve Report from the Dallas Branch.

The vice president of the FRB-D  says that there are large “industry clusters” around the state where the economy is stable.

She says industries with high-paying jobs – like government, technology, construction, biomedical and defense – may not grow very quickly, but they don’t tend to lose jobs.

(Researchers) look at the question of why cities tend to grow faster,” she says. “They tend to grow faster because firms tend to group into industries and specialize, so certain regions are specialized in certain industries. This increases productivity growth. It raises wages for workers and it has a lot of benefits on growth.

Orrenius says the report shows a surprising diversification in industry in places like San Antonio, one trend that mimics the nation as a whole.

You really see some interesting insights,” she says. “We know that Houston is a huge center of the oil and gas industry in the nation, but then you see that Dallas, for example, has a very large concentration of professional and business services.”

The Report says that Austin bounced back from the Recession paced by its large and fast-growing high-tech sector.  Austin currently ranks first on The Kauffman Startup Index.

The Midland-Odessa Region will contract during the Glut, but that region has faced this before, many times, so it is “mature” in its handling of the situation.

Despite Houston’s huge petrochemical industry, diversification is pronounced. The Report says that “with five metropolitan areas of 1 million or more residents, Texas has more big cities per capita than the other large U.S. states with the exception of Florida and Ohio. Dallas–Fort Worth and Houston rank among the top five largest metropolitan areas in the U.S. in terms of both population and economic output. In fact, Texas is the only state to have two metros in the top five.”

Latest interview on Capital Markets Today

We discuss the fiscal cliff, sequestration cuts, debt ceiling, QM rules, Jack Lew, Fexit, and 2013 economic forecasts

Why Some States are “Donors” and others are “Donees”

Fix and PL commenters are quick to allege that R states are “donees” and D states are “donors”.  The reality eludes them.  But what is the reality?

In the map above, the deepest green states are the biggest donors and the deepest red states are the biggest donees.

The average state should be light green, that is, a small donor, to cover spending outside the USA.  We should look at the average states, the light green ones, like Texas, last.

We can quickly deal with some of the red states.  MD and VA house much of the federal bureaucracy.  They are understandably donees.  NM and AK have huge native American and national park and national forest burdens.  They are understandably donees.  Notice, btw, that of those first four, only one is reliably Republican.  That always falls on deaf ears at PL.

NJ, an industrialized state with plenty of manufacturing and commerce and limited support from AG subsidies or military bases or national parks or Indian reservations, is an understandable big donor.

I have more trouble understanding IL’s situation.  Like TX, it is big in industry and agriculture. IL should be light green, as far as I can see.   Why is it such a big donor?

Why is WVa such a big donee?  If I had to guess, I would think it was purely the legacy of Robert Byrd, but that is cynical, no?  Why is FL a net donee?  Indians and parks?  Could be the Everglades and Key West and the military are enough to explain it, coupled with AG subsidies.  Or are they counting where the social security checks are going?

I am curious as to y’all’s deep thoughts, this not being either The Fix or PL.

Morning Report

Vital Statistics:

Last Change Percent
S&P Futures 1363.6 3.9 0.29%
Eurostoxx Index 2532.8 -17.4 -0.68%
Oil (WTI) 105.04 1.8 1.74%
LIBOR 0.4926 -0.001 -0.10%
US Dollar Index (DXY) 79.145 0.005 0.01%
10 Year Govt Bond Yield 2.03% 0.03%

We have a deal in Greece. Bondholders had to take a slightly bigger haircut – 53% vs 50% already agreed to. The $170 billion will be more than enough for Greece to meet its payment at the end of March. The Eurostoxx index is down slightly on the news – another case of “buy the rumor, sell the fact.”

Are we out of the woods with Greece?  No. Greece intends to hold elections in the next few months, and there is nothing preventing a new government from undoing all of the austerity measures imposed for this deal.

The Chicago Fed released its National Activity Index this morning. It came in at .22, which indicates the economy is growing faster than its historical trend.  An index value of zero means the economy is growing at its historical trend.  Employment and Production were large positive components, while Consumption and Housing were negative components. December was revised higher as well.

The Home Despot reported better than expected earnings this morning, which should be another positive indicator for housing and the economy. Macy’s also reported a strong holiday selling season.

Economic data on tap this week:  Existing Home Sales on Wed, Initial Jobless Claims on Thurs, New Home Sales on Fri.

Morning Report

Vital Statistics:

Last Change Percent
S&P Futures 1341.4 -0.8 -0.06%
Eurostoxx Index 2471.7 -22.2 -0.89%
Oil (WTI) 101.61 -0.2 -0.19%
LIBOR 0.4931 -0.002 -0.40%
US Dollar Index (DXY) 79.952 0.225 0.28%
10 Year Govt Bond Yield 1.96% 0.03%

Global equity markets are weaker this morning as European leaders delay a vote on the Greek bailout until 2/20.  The finance leaders were able to squeeze some more concessions from political leaders, but there are still differences over surveillance and control. Separately, Moody’s threatened a downgrade of the global banking sector. Bonds and mortgage backed securities are slightly lower as well.

GM posted a record profit! I am sure tomorrow’s editorial pages will be filled with columns praising the auto bailout and using this earnings announcement as justification. Well, if you repudiate your debt and get rid of all that pesky interest, you had better post record earnings.  GM’s numbers were still below estimates and the stock is down a couple of percent pre-open. As an aside, Chrysler has to issue senior secured debt at 8%.  That is a usurious rate for senior secured debt. See, that is what happens when you re-order the priority of creditors. Investors remember.

Economic data this morning:  Producer Price Index more or less in line with expectations, running at 4.1% annually.  Initial Jobless Claims continue to fall, coming in at 348k vs 365k expected. We are more or less back in the historical “normal” range. Housing starts came in at 699k, above expectations, but still very low. In prior recessions, housing starts bottomed at 750k – 850k.  The last time we were above 1 million units was June of 2008.  1.5 million is normal. The lack of residential construction has been the achilles heel of the recovery so far.

Chart:  Housing Starts:

The minutes of the FOMC meeting were released yesterday. They really don’t add anything to what was said in the press conference after the rate decision.  The minutes don’t really address the question most had regarding the recent good economic data. “Many participants noted some indicators bearing on the economy’s recent performance had shown greater-than-expected improvement, but a number noted less favorable data…” The tone of the minutes was that the economy was improving, albeit slowly, and there is no reason to take our foot off the gas for the moment.  Maybe the Fed believes the Greek negotiations are simply a big kabuki dance and that a default is unavoidable.

RealtyTrac has released its U.S. Foreclosure Market Report for January 2012. Key Quote: “Although overall foreclosure activity was down from a year ago for the 16th straight month in January, we continue to see signs on a local and regional level that the frozen-up foreclosure process is beginning to thaw.” They predict increasing foreclosures in the coming months especially given the settlements in early Feb between the nation’s largest lenders and 49 state attorney generals. Clearing out the shadow inventory of foreclosed homes is a necessary but not sufficient condition for a recovery in house prices.

Morning Report

Vital Statistics

Last Change Percent
S&P Futures 1352.7 5.0 0.37%
Eurostoxx Index 2504.6 16.3 0.65%
Oil (WTI) 101.52 0.8 0.77%
LIBOR 0.4951 -0.003 -0.50%
US Dollar Index (DXY) 79.543 0.159 0.20%
10 Year Govt Bond Yield 1.93% -0.01%

Markets are higher this morning on statements from the Bank of China regarding support for the European bailout and its willingness to help. Concerns about an eventual Greek deal are offsetting some of these gains. Bonds and mortgage backed securities are flat.

Mortgage Loan Delinquencies are increasing again, according to TransUnion. 64% of MSAs reported increases, which was flat compared to Q3, but much higher than Q2.  There are seasonal factors at work here, and the continuing decline in real estate prices are certainly playing a part, but that is not an encouraging data point economically. As if the foreclosure pipeline wasn’t big enough already.

Not that the markets really care, but it looks like we have a payroll tax deal.

The Empire State Manufacturing Index came in at stronger than expected. This is a touchy-feely indicator of general business conditions put out by the New York Fed.  This index is notoriously volatile, so big moves should be taken with a grain of salt, but it shows that the expansion is gaining momentum in New York State.  Separately, industrial production was flat and capacity utilization unexpectedly fell.

The National Association of Home Builders will release their market index at 10:00 am. Residential construction has been the missing piece of the recovery, but has been showing signs of life lately.  Earnings reports from the homebuilders have been constructive.

The FOMC minutes will be released this afternoon. I am very curious to see why the Fed is behaving as if the economy is rolling over, while the data suggest otherwise.

Last, Ezra Klein at the Washington Post has a story on how the World Cup affects trading.  I can attest to this personally, having been a block trader at Bear Stearns in London for a number of years.  When England was playing a match, the phones would stop ringing and everyone had their backs to their screens, watching the match.  You could actually see major stocks like British Petroleum and Vodafone stop trading.  As an American, it was strange to watch.


The National Association of Homebuilders released their market index at 10:00 am.  The index came in better than expected and it looks like conditions are improving at an accelerating rate.

Chart:  NAHB Market Index:

Morning Report

Vital Statistics:

Last Change Percent
S&P Futures 1344.3 -4.8 -0.36%
Eurostoxx Index 2486.5 -5.1 -0.20%
Oil (WTI) 101.08 0.2 0.17%
LIBOR 0.4976 -0.005 -0.99%
US Dollar Index (DXY) 79.279 0.144 0.18%
10 Year Govt Bond Yield 1.94% -0.03%

Markets are a touch weaker after a disappointing retail sales number. Advance retail sales for January were up .4% vs. expectations of .8%.  S&P futures sold off slightly on the number while bonds and mortgage backed securities rallied. For those who follow charts, the S&P is right up against resistance at the 1350 level.  If we break through, the next stop is 1600 or so.

European markets are flat in spite of Moody’s downgrades of Spain, Portugal, and Italy yesterday. The ratings agencies have been behind the curve for the whole crisis. European finance ministers are set to meet in Brussels tomorrow to approve a second Greek bailout.

Andrew Ross Sorkin has a good article on the Volcker Rule and the Costs of Good Intentions. At issue is where one draws the line between bona fide market making and proprietary trading. Bona Fide market making serves a purpose in that it keeps trading costs down and adds liquidity to the market. (FWIW, Paul Volcker doesn’t necessarily think this is a good thing). The crux of the issue is whether investment banks will be allowed to maintain an inventory of product. If they aren’t permitted to maintain any inventory of any size, then all trades will be agency trades.  In other words, if the bank can’t find the other side of your trade, you’re out of luck.

The CFPB has laid out a broad outline of some of the changes it expects to make for mortgage servicers. The initial steps will involve changes to billing statements – new rules to make it clearer when resets will occur, better contact information, and a statement from HUD.  An example of the new template is here.  The rules will also address forced-place insurance, where servicers can put a homeowner in a new, more expensive insurance plan if they fall behind in their payments.

Does anyone find it ironic that the rule which sets new tax rates on dividends is named after a guy who’s company doesn’t pay them?

Morning Report

Vital Statistics:

Last Change Percent
S&P Futures 1349.1 8.5 0.63%
Eurostoxx Index 2495.7 14.9 0.60%
Oil (WTI) 100.32 1.6 1.67%
LIBOR 0.5026 -0.003 -0.67%
US Dollar Index (DXY) 78.775 -0.229 -0.29%
10 Year Govt Bond Yield 1.99% 0.01%

World markets are rallying on the positive Greek austerity vote over the weekend.  European finance ministers will meet on Wednesday to approve the second bailout plan.  Does this mean the crisis in Greece is over?  Not really.  Bondholders have to accept the proposed haircuts and if there are holdouts (and the holdout trade is a staple of distressed hedge funds), there will still be risk of default.

Heard on the Street has a good piece on corporate profit margins and what that means for the economy.  Productivity has been falling, and that perversely can portend good things.  After the financial collapse, companies dramatically cut their workforces and held off on capital spending unless it was absolutely necessary.  As demand returned, companies squeezed as much output as they could from existing resources.  They held off hiring and making investment in productivity-increasing capital. Stocks have reacted positively to growth in profit margins as revenues increased while costs stayed stagnant.  This was reflected in the productivity numbers (which measure amount of output per input).  Lately, productivity increases have been smaller and smaller, meaning that effect has largely been played out.  This means if companies want to meet increased demand, they have to hire – their existing workforces are maxed out.  Which bodes well for unemployment and wages.  What does that mean for corporate profits and stocks?  It means that the top line (revenues) will have to drive profit growth.  Tepid economic growth will mean stagnant profits.

The SEC has launched an “informal inquiry” into the private equity industry. What a shock. It must be nice to have government agencies with subpoena power to conduct oppo research. (Couldn’t the NYT find a more menacing picture of Henry Kravis?)

No economic data today.  I am very interested to see the minutes of the FOMC meeting on Wednesday.

Morning Report

Vital Statistics:

Last Change Percent
S&P Futures 1347.8 0.8 0.06%
Eurostoxx Index 2535.2 22.2 0.88%
Oil (WTI) 99.73 1.0 1.03%
LIBOR 0.51 -0.003 -0.63%
US Dollar Index (DXY) 78.556 -0.182 -0.23%
10 Year Govt Bond Yield 2.04% 0.06%

Markets are up slightly on a better than expected initial jobless report. Initial Jobless claims were 358k last week versus 370k expected.  The ECB maintained rates and Draghi sounded bearish tones regarding the European economy.  Headlines are coming across right now that claim Greek leaders have agreed on an austerity package.

Bloomberg is reporting (on the pay site, not the free site) that the price of Bakken shale oil has fallen out of bed (down 25%) in the last week.  There are no futures contracts on Bakken so it can’t be traded, but it demonstrates how volatile oil can be.  The reason seems to be a lack of demand from the refineries, so the oil is backing up with nowhere to put it. Refineries are probably changing over from heating oil production to gasoline production right about now.  I plotted the prices of Brent, WTI, and Bakken oil over the past year so you can see the volatility.

It looks like we have a settlement with the banks and the state AG’s over foreclosures.  $26 billion from 5 banks.  $20 billion is to be used to cut principal balances and to refi current, but underwater, homeowners.  So, of the AGs and the banks, who won?  Both.  The AGs get their scalp, and the banks will be able to count losses already taken towards the settlement. (You owe $100 on your $70 home.  I’ll be a nice guy and cut your principal to $90.  Of course, I probably am already carrying the loan at 90 on my books anyway).  On the refis, the banks will be simply cutting the interest rate on a $100 loan, which stays marked at $100. So no write downs there either.  My guess is this will be earnings-neutral near term and may cause analysts to take down next year’s numbers a little. But that’s it.  So you might want to resist the urge to take some SKFs (Proshares Ultrashort Financial ETF) on the open.

Will it help support the housing market?  Maybe at the margin.  It is no silver bullet – consider my example above – will the homeowner who now owes $90 instead of $100 go out and spend more money?  Probably not. Plus a chunk of this is simply a direct transfer from the government to borrowers since Ally Bank (the old GMAC) is owned by the government.

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