Morning Report: Hiring and quits are rising

Vital Statistics:

	Last	Change
S&P Futures	2422.0	-2.0
Eurostoxx Index	380.1	-1.6
Oil (WTI)	44.1	-0.3
US dollar index	88.4	0.1
10 Year Govt Bond Yield	2.39%
Current Coupon Fannie Mae TBA	102.88
Current Coupon Ginnie Mae TBA	103.75
30 Year Fixed Rate Mortgage	4.05

Stocks are lower this morning on no real news. Bonds and MBS are flat.

Job openings fell slightly in May to 5.7 million, according to the BLS. The number of hires increased by 430k to 5.5 million. The quits rate increased to 2.2 million. The quits rate is a key indicator that carries a lot of weight with the Fed. An increase in the quits rate usually is an indicator of future wage inflation. The quits rate is back to pre-crisis levels.

 

Small business optimism declined in June, according to the NFIB. We are still higher than we were pre-election, but some of the optimism is fading as it looks like tax reform and healthcare reform are not going to happen. Employment-related indicators ticked down, but are still very strong. 85% of all respondents that tried to hire reported that there were few or no candidates with the required experience. Rising compensation will draw more people into the workforce, however that will be a slow process. Note that much of the drop in the labor force participation rate has been due to people aging out. The first big question is whether these people want back into the workforce or are content to stay retired. The second big question is whether ageism will keep these people out. 

Consumers are becoming more optimistic according to the New York Fed. Nearly 35% of all respondents said they are better off now than they were a year ago, and they are less worried about losing their jobs. Consumers also said they expect to spend about 3.3% more in the coming year than they did last year.

Are appraisers going to be replaced by artificial intelligence and / or algorithms like Zillow's Z-estimates? Some people think so. Zillow has been tweaking its model to take into account more than just the comps - now it will include things like interior amenities. This may happen out of necessity: the regulators raised the barriers to entry so high that the pipeline of new people entering the profession is almost nothing (In 2005, 1,200 people entered the profession. Now it is 100). The average age of an appraiser is 58 and there simply isn't a stream of replacements. Freddie Mac is now willing to accept model-generated appraisals for some refis and is asking FHFA for permission to use more. It kind of begs the question of why the government then thinks appraisers need to have so much education and apprenticeship time if it is willing to accept modeled values to begin with. 

Mortgage performance improved last month according to CoreLogic. 4.8% of all mortgages were 30 days down in April compared to 5.3% the year prior. That said, early stage delinquencies (30 - 60 days down) ticked up to 2.2% from 2% the year before. 60-90 day DQs were roughly flat YOY. Some of the drop in performance is coming from the energy-intensive states like Alaska and North Dakota. Now that oil cannot seem to get out of its own way, we may start seeing more trouble in the oil patch. 

The CFPB has released a new rule making it easier for class-action suits against lenders. Financial firms will be restricted in their ability to use mandatory arbitration clauses to protect themselves against lawsuits. Under the Congressional Review Act, Congress has 60 days to overturn the new rule. The OCC has asked the CFPB for their data, and Republican Jeb Hensarling has already come out against it.