Morning Report: Fed still constructive on the economy

Vital Statistics:

	Last	Change
S&P Futures	2389.5	6.3
Eurostoxx Index	391.1	1.7
Oil (WTI)	46.9	-0.9
US dollar index	90.1
10 Year Govt Bond Yield	2.34%
Current Coupon Fannie Mae TBA	102.84
Current Coupon Ginnie Mae TBA	103.92
30 Year Fixed Rate Mortgage	4.04

Stocks are higher as the GOP votes on the Obamacare replacement. Bonds and MBS are down. 

The Fed made no changes to policy yesterday. Bonds sold off a few ticks on the announcement, which was constructive on the economy. Specifically, they noted that job gains remained solid, despite a slowdown in economic growth. Consumption remains an issue, but much of that is due to an increase in the savings rate post-crisis. 

Job cuts decreased in April, according to outplacement firm Challenger, Gray and Christmas. Just over 36,000 job cuts were announced in April, which is down 15% from March and 43% from April last year. Retailers announced the most cuts, with autos and healthcare coming in second and third. 

Initial Jobless Claims fell to 238k last week, which is still at the lowest levels since the early 1970s. 

Productivity fell 0.6% in the first quarter while unit labor costs rose 3%. This reading certainly makes sense in light of the weak Q1 GDP print. The conundrum of the past decade has been the drop in productivity growth, which drives wage growth and increases in standards of living. While there is a definite measurement issue (for example the plethora of free information available on the internet would certainly seem to boost productivity, however because it is free, it doesn't show up in the calculations). Last year's productivity growth was 1.4%, which was well below the historical average of 2.2%. Theoretically, low productivity would lower the growth ceiling on the economy which would make inflation emerge quicker and force the Fed to act more aggressively, however inflation is nowhere to be found and while there are labor shortages we aren't seeing any real wage inflation yet. 

Donald Trump has mentioned breaking up the big banks and a return to some sort of Glass-Steagall regime. That said, it doesn't appear to be a priority, and the administration barely discusses it. Any discussion of breaking up the big banks would probably be limited to Bank of America, JP Morgan, and Citi. Any sort of break-up of these 3 would probably have limited impact on the mortgage market, as non-banks now dominate the space and Wells Fargo really doesn't have the investment banking footprint the big 3 have. 

The continuing resolution was passed by the House which should take the risk of a government shut down off the table until later next year.