Morning Report: Job openings at another record

Vital Statistics:

	Last	Change	Percent
S&P Futures	1984.9	19.2	0.98%
Eurostoxx Index	3315.0	81.1	2.51%
Oil (WTI)	45.49	-0.4	-0.98%
LIBOR	0.333	0.001	0.30%
US Dollar Index (DXY)	96.34	0.358	0.37%
10 Year Govt Bond Yield	2.23%	0.05%
Current Coupon Ginnie Mae TBA	104	-0.2
Current Coupon Fannie Mae TBA	103.7	-0.1
BankRate 30 Year Fixed Rate Mortgage	3.84

Stocks are higher this morning on overseas strength in equity markets led by Japan. Bonds and MBS are down. 

Mortgage Applications fell 6.2% last week, with purchases falling 0.9% and refis falling 9.9%. 

Job openings hit a record in July, with the JOLTS job openings hitting 5.7 million. Compare that number with the number of unemployed at 8 million. The quits rate (which is a measure of economic strength) has been unchanged for the past year however at between 2.7 million and 2.8 million. It seems surprising to see a labor force participation rate at 38 year lows, job openings at highs, an unemployment rate at boom time levels, and almost  no real wage growth. It speaks to a mismatch between what business wants and who is available. 

Chart: JOLTS job openings:

Citi is forecasting a better than 50% chance of a global recession in the next couple of years. This will be led by emerging markets and China. While that doesn't necessarily mean the US will head into a recession, it does mean that there will be little to no upward pressure on interest rates. The biggest risk to the US is a sharp increase in the US dollar, which will hurt exporters. The policy response to a recession will be limited - monetary policy is already at pretty much full stimulus. Much more worrisome however, is the fact that protectionist policies are gaining in popularity. 

Homebuilder Hovnanian reported earnings this morning. Deliveries fell 3.8% compared with last year. Gross margins were down as well. Contracts did expand however, to almost 20%. It seems like the builders in general had a bit of a lull in deliveries over the summer, but almost all reported bit increases in contracts and backlog. We are entering the slow season for the builders, which lasts about as long as football season. While I sometimes feel like Linus in the pumpkin patch, 2016 could be a big year for the builders. Would be nice to get housing starts back around historical levels of 1.5 million or so. 

Larry Summers is out with another editorial which lays out the case for keeping rates at zero. His argument is that credit spreads have widened (which means the interest rate companies have to pay to borrow) has increased over the past month and that in of itself constitutes a tightening. David Stockman (Reagan's budget director) was on Bloomberg Radio this morning excoriating the "clowns at the Fed" for not having raised rates already. His point is that the unemployment rate is in the middle of the range of what the Fed considers full employment. In fact, the 5.1% unemployment rate is in the bottom quintile of unemployment rates over the past 40 years.