Morning Report: The labor market is getting tight.

Vital Statistics:

	Last	Change	Percent
S&P Futures	2076.2	-2.0	-0.10%
Eurostoxx Index	3453.9	-14.5	-0.42%
Oil (WTI)	59.5	1.4	2.34%
LIBOR	0.281	0.002	0.82%
US Dollar Index (DXY)	95.55	0.249	0.26%
10 Year Govt Bond Yield	2.43%	0.05%
Current Coupon Ginnie Mae TBA	100.6	-0.3
Current Coupon Fannie Mae TBA	99.42	-0.1
BankRate 30 Year Fixed Rate Mortgage	4.06

Stocks are lower this morning on concern that Chinese growth is slowing. Bonds and MBS are lower.

Wholesale Inventories increased 0.4% in April, while wholesale sales rose 1.6%. The inventory to sales ratio was 1.29x, which is on the high side. This means that unless sales increase markedly, manufacturers will have to slow down production to work down the excess inventory. This would dampen GDP growth going forward.

Job openings hit 5.4 million in April, the highest number since the survey began in late 2000. The "quits rate," which is an important data point for the Fed is inching up to 1.9% from 1.7% a year ago. 

The NFIB Small Business Optimism index rose to 98.3 in May, finally approaching "normalcy." Money quote regarding the labor market: "Owners report that the labor market is, from an historical perspective, getting very tight. Owner complaints about “finding qualified workers” are rising, job openings are near 42 year record high levels, and job creation plans remain solid. Over 80 percent of those hiring or trying to hire in May reported few nor no qualified applicants. This is inconsistent with current Fed policy, which has no impact on the supply of qualified workers." In terms of biggest concerns for small business, quality of labor (not cost) remains the #3 biggest concern, behind taxes and government regulation. Quality of labor has now displaced "poor sales" on the top 3 list.

The Chinese stock market bubble continues to inflate despite a weakening economy. The Chinese government is basically endorsing the rally, and is changing the rules regarding margin selling to ease the problem of forced selling. China is undoubtedly having an episode similar to the US in the 20s and Japan in the 80s. It may (and probably will) go on for a lot longer than people think it will. But with each passing day, the "investments" get more marginal and more speculative, and the whole edifice is built on borrowed funds, which always seems to end badly when the music stops. 

Completed foreclosures fell to 40,000 in April, down from 50,000 a year ago, according to CoreLogic. The seriously delinquent rate fell to 3.6%, the lowest since Feb 2008. About 521,000 homes are in some stage of foreclosure, down from 694,000 a year ago. Foreclosure inventory remains the highest in the judicial states of New Jersey and New York. Note, New York is going to do something about zombie foreclosures: vacant homes which are taking their time to get through the process. Lest anyone think they are doing this to give investors a chance to limit their losses, the real reason is so they can sue if they are unhappy with the way the property is being maintained.