Morning Report: Median incomes rise

Vital Statistics:

	Last	Change
S&P Futures	2117.0	3.0
Eurostoxx Index	338.7	0.3
Oil (WTI)	43.8	0.2
US dollar index	86.7	0.0
10 Year Govt Bond Yield	1.71%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.54

Markets are up as the Bank of England maintained policy. Bonds and MBS are down.

Mortgage applications rose 4.2% last week as purchases rose 9% and refis rose 2%. The increase was driven due to a favorable comparison to the Labor Day shortened week before. 

Initial Jobless Claims came in at 260k last week. Consumer comfort slipped. 

Inflation remains tough to find at the wholesale level, according to the Producer Price Index. The PPI was flat month over month and year over year. Ex-food and energy it rose 0.1% last month and is up 1% YOY. The Fed prefers to use the Personal Consumption Expenditure index versus the CPI and PPI, but the Fed's measures are in the ballpark with CPI / PPI. Neither indicator is suggesting the Fed has to hike in order to stop inflation. 

Retail Sales fell 0.3% in August. Less autos and gas they fell 0.1%. While the latest GDP numbers show an increase in consumption, you aren't seeing that in these numbers. Online shopping explains it to some extent, however August and September are the back to school shopping season, which is usually a good predictor for the holidays. 

Manufacturing continues to disappoint, as industrial and manufacturing production fell 0.4% in August. Capacity Utilization slipped from 75.9% to 75.5%. Meanwhile, the Philly Fed Business Outlook rose to 12.8 while the Empire State improved to -2. July's improvement in manufacturing looks more like a blip than a trend reversal. 

Technical analysis shows the latest rout in the bond markets resembles the taper tantrum of 2013. The long bond trade simply got too easy and too crowded. Note that mortgage rates lagged the move up in 2013. The 10 year bond yield bottomed in the spring and the Bankrate mortgage rate didn't bottom until fall. This time, mortgage rates are increasing with the bond yields, but at a much slower pace. 

Median incomes rose 5.2% in 2015, according to the Census Bureau. This is a surprising number that doesn't really comport with what we have been seeing out of the Bureau of Labor Statistics. This number puts the median house price to median income ratio at 3.9x which is higher than the historical range of 3.2-3.6x. Low interest rates complicate the comparison, however.