Morning report: Hard vs soft data

Vital Statistics:

	Last	Change
S&P Futures	2345.5	-10.5
Eurostoxx Index	378.7	-0.6
Oil (WTI)	50.5	0.3
US dollar index	90.5
10 Year Govt Bond Yield	2.32%
Current Coupon Fannie Mae TBA	103.41
Current Coupon Ginnie Mae TBA	103.7
30 Year Fixed Rate Mortgage	4.09

Stocks are lower this morning after auto sales disappointed. Bonds and MBS are up. 

Factory orders rose 1% last month, in line with expectations.

US economic confidence decreased last week, according to Gallup, however confidence is still strong. Meanwhile, consumer spending was flat. 

These data points (economic confidence, consumer spending, and auto sales) illustrate the conundrum we have been seeing for the past few months: soft data like confidence and ISM reports show a strong economy, while the hard data like sales have been showing a mediocre economy. Much of this is Washington-driven as investors realize that Trump will have a difficult time pushing through his agenda in the face of unified Democratic opposition and a Freedom Caucus that wants less government, period. Unrealistic expectations are being brought back to Earth. Despite gridlock, much is being done on the regulatory front and with executive orders which don't require Congressional approval. That will help. But there seems to be a shift in the psychology of investors: the markets seem to be worrying less about the Fed and worrying more about tepid growth. Bonds have noticed as well, with the 10 bond yield down about 30 basis points over the past 3 weeks. 

Home prices rose 7% YOY in February, according to CoreLogic. We are seeing the highest price appreciation at the lower price points. The first time homebuyer is getting hit with a double-whammy of higher prices and borrowing costs. 

Housing's share of GDP came in 15.6% in the fourth quarter. Historically, that number has been around 18%. Housing continues to punch below its weight, as evidenced by tight inventory. It is hard to know exactly why homebuilding continues to be weak - credit is an issue, as is the general post-bubble caution, along with local land use regulations.