Morning Report: Decent jobs report

Vital Statistics:

	Last	Change
S&P Futures	2579.0	2.3
Eurostoxx Index	395.2	0.3
Oil (WTI)	54.8	0.3
US dollar index	87.7	0.0
10 Year Govt Bond Yield	2.34%
Current Coupon Fannie Mae TBA	102.875
Current Coupon Ginnie Mae TBA	103.938
30 Year Fixed Rate Mortgage	3.95

Stocks are up small after the jobs report. Bonds and MBS are up small. 

Jobs report data dump:

• Nonfarm payrolls up 261,000 versus 325,000 expected
• 2 month payroll revision up 90,000
• Unemployment rate 4.1% versus 4.2% expected
• Labor force participation rate 62.7% vs 63% expected
• Average hourly earnings flat / up 2.4% YOY.

Overall, a decent report. Payrolls disappointed, but the 2 month revision more than made up for the miss. The unemployment rate is now the lowest since 2000. The drop in the labor force participation rate and flat hourly earnings were disappointing, however. This report won't make any difference to the Fed's thinking for December, and the market is basically calling a 25 basis point hike a sure thing at this point. 

Note that the miss in average hourly earnings was driven in part by the hurricanes. Restaurant and bar jobs were hit the hardest in the areas affected, and they are lower paying jobs. The loss of these low-paying restaurant and bar jobs in September artificially increased average wages overall. That effect was reversed in October. 

The PMI for services was flat in October, while the ISM Services index increased to 60.1. Hurricane effects could be coming into play here as well. 

Factory orders increased 1.2% in September, as the manufacturing sector continues to expand. 

If you heard a snap yesterday, that was the sound of McMansions in places like Darien, CT and McLean, VA cracking on the proposed sharp reduction in the mortgage interest deduction. Luxury homebuilder Toll Brothers was down 6% yesterday on the proposal, which lowers the MID cap to $500,000 and ends the deduction for second homes. The homebuilder ETF was only down 2.5%. Automaker Tesla was also hit 7% on the proposed elimination of the $7,500 electric car tax credit. I also wonder how this will affect jumbo delinquencies and demand for jumbo MBS.  

The NAHB is warning that the change in the mortgage interest deduction could trigger a housing recession. Their point is that it will cause weakness in some high end markets and that weakness will spread to others. FWIW, I think the sheer lack of inventory is the most important characteristic of the current housing market and that will dominate. That said, it won't be good for home prices in the million dollar range at the margin, and some markets in California could see a moderation of home prices.