Morning Report: Self-employed borrowers get some help from Congress

Vital Statistics:

	Last	Change
S&P futures	2911	-3.75
Eurostoxx index	385.16	-1.42
Oil (WTI)	69.93	0.42
10 year government bond yield		2.86%
30 year fixed rate mortgage		4.55%

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

Donald Trump is suggesting that a new NAFTA could be in place by the end of the week. One sticking point is removing a provision that inhibits the US from pursuing anti-dumping and anti-subsidy cases. Mexico has agreed, but Canada is still fighting it. 

Initial Jobless Claims slipped 1K to 213,000 last week. 

Personal incomes rose 0.3%  and personal spending rose 0.4% in July, which was right in line with estimates. The PCE inflation index came in at 0.1% MOM / 2.3% YOY, and the core PCE index rose 0.2% MOM / 2.0% YOY. Inflation is pretty much right at the Fed's target, which means they don't have to move quickly to increase rates and can still just gradually lift off the lower bound. 

A Reuters poll of real estate experts suggests that home prices will rise 6% this year and then begin to taper off the growth. Limited inventory has pushed up home prices well in excess of wage growth and inflation over the past 6 years. That sort of phenomenon can work when interest rates are falling, as the lower mortgage payment offsets the higher prices, but that game is over. 

Congress is entertaining legislation that will make it easier for self-employed borrowers to get a mortgage. The bipartisan "Self-Employed Mortgage Access Act" will address the needs of borrowers who don't have traditional W-2 income. Sponsor Mark Warner said: “An increasing number of Americans make their living through alternative work arrangements, like gig work or self-employment. Too many of these otherwise creditworthy individuals are being shut out of the mortgage market because they don’t have the same documentation of their income – paystubs or a W-2 – as someone who works 9-to-5. This bill will allow these workers to supply other forms of paperwork to verify their income while continuing to protect consumers from predatory lending.” The bill will expand the universe of income documentation to allow these borrowers to fall under QM. The bill is supported by the MBA and the Consumer Federation of America. 

The Great Recession left what looks to be a permanent gap between potential GDP and actual GDP, which amounts to something like $70,000 per person. You can see the output gap in the chart below. Interestingly, the word "bubble" appears nowhere in the article - it is as if the financial crisis appeared out of nowhere, which certainly demonstrates a blind spot for the Fed (and central bankers in general). 

They don't take into account that the trajectory of growth (beginning in 1998 through 2006) was artificially boosted due to increasing asset prices. The trajectory begins with the stock market bubble and ends with the real estate bubble. Granted the late 90s growth was also influenced by a boom in productivity, but that ended soon after. I always find it interesting that central bankers believe "too much money chasing too few goods" (i.e. inflation) is a monetary phenomenon, but "too much money chasing too few assets" (i.e. asset bubbles) is not. 

Morning Report: Strong growth in spending and incomes

Vital Statistics:

			Last	Change
S&P futures			2811	7.75
Eurostoxx index			391.64	0.72
Oil (WTI)			69.72	-0.41
10 Year Government Bond Yield				2.95%
30 Year fixed rate mortgage				4.62%

Stocks are higher as earnings continue to come in. Bonds and MBS are up on news that the Bank of Japan will continue to hold down rates. 

Personal spending and personal income rose 0.4% in June, according to BEA. Inflation remains under control with the PCE price index up 2.2% YOY and the core rate up 1.9%. The income and spending numbers were in line with expectations, and the inflation numbers were a touch below. Good news for the bond market as we start the FOMC meeting. Separately, another strong number out of the Chicago PMI. 

The employment cost index rose 2.9% in the second quarter with wages and salaries increasing 2.9%. Benefit costs increased 2.9%. 

Punch line: wages and salaries up 2.9%, inflation up 2.2% - we are seeing real wage growth despite all the stories in the press that wages are stagnant. 

Home prices rose 6.4% in May according to the Case-Shiller home price index. San Francisco, Seattle and Las Vegas all reported double-digit gains. All MSAs are beginning to correlate a little tighter, with the spread between fastest and smallest falling to 10 percentage points, which is much smaller than the 25 ppts we saw during the bust years and the 20 ppt average since 2001. My guess is that this is a function of the improving job market in the Midwest and working through the last of the foreclosure inventory in the Northeast.

Mission creep out of the GSEs? Some Republican congressmen are calling foul as Fannie and Fred started a pilot program where they buy low downpayment loans and pair them with MI from Arch. Many in Congress would like to see Fannie and Freddie reduce their footprint in the mortgage market, not increase it. The FHFA has justified this move as necessary to perform their affordable housing mission. This will be a constant partisan battle, between Republicans who are alarmed by the fact that the US taxpayer bears the majority of the credit risk in the US mortgage markets and Democrats who are alarmed by the lack of affordable housing.  

Young people are shunning construction jobs. The share of younger (under 24) workers in the construction industry has fallen 30% since the bubble days. The number of workers in the industry has fallen as well - from 11.7 million in 2006 to 10.2 million 10 years later. The typical construction job stays open for 39 days nationally, and many builders are hiring ex-cons to meet demand. The obvious answer would be for builders to raise pay to attract people, but what do you do if you are in the starter home business? Between higher wages and regulatory costs, your starter home might be unaffordable to people with the starter income. Note the industry has promised to train 50,000 workers over the next 5 years, but this is a drop in the bucket. 

Morning Report: New down payment assistance programs

Vital Statistics:

			Last	Change
S&P futures			2728.75	9.5
Eurostoxx index			379.91	3.04
Oil (WTI)			73.39	-0.06
10 Year Government Bond Yield				2.84%
30 Year fixed rate mortgage				4.52%

Stocks are higher this morning on end-of-quarter window dressing. Bonds and MBS are flat. 

Personal incomes rose 0.4% in May while personal spending rose 0.2%. Incomes were in line with estimates, while spending was lower. The June FOMC statement said that consumer spending was accelerating - no evidence of that in this report. Services spending drove the decline, and we could be seeing evidence that higher gasoline prices is affecting discretionary expenditures. Inflation was in line with expectations at the MOM level, and a hair above expectations on an annual basis. The core PCE index ex-food and energy came in at 2%, which is right where the Fed wants it. April's income and spending numbers were revised downward. Don't be surprised if strategists take down some of their Q2 GDP forecasts on these numbers. 

The Chicago PMI improved to 64 from 62, which is a 5 month high. New Orders and order backlog drove the increase. We are seeing some signs of inflation brewing, with extended lead times, and a 7 year high on the prices paid index. Businesses were asked about how trade was affecting their operations. About 25% said they were having a significant impact, 40% said there was a minimal impact, and the rest were either unsure or insulated from trade issues. 

KB Home reported strong numbers, with a 170 basis point increase in gross margins, 10% revenue growth, and a 50% increase in operating income. ASPs were up 4% to 401,800, and order growth was 3%. Backlog was the second highest on record. The stock is up 7% pre-open. 

Interesting theory about the lack of construction workers: opiods. Between users and those that have been convicted of crimes related to usage, many workers are shut out of the work force. 80% of homebuilders report shortages in subcontractors. 

The Senate will hold hearings on July 12 and 19th for Kathy Kraninger's nomination to run the CFPB. The conventional wisdom is that she is not intended to be confirmed, but is to be an excuse to keep Mick Mulvaney in charge of the agency. 

Deutsche Bank failed its stress test, while State Street, Goldman and Morgan Stanley got dinged. 

Many Millennials are struggling to get a down payment for a home, and now some companies are working to help them get it. One company will supply up to a $50,000 downpayment if the borrower rents out a room on Air B&B and shares the income with the company. These loans are appealing to borrowers who might qualify for a FHA or 3% down Fannie loan but don't want to pay the MI and other costs. While there are fears that we are bringing back the bad old days of the real estate bubble, here is the MBA's mortgage credit availability index. We are a long way away from the days of the pick-a-pay mortgage. 

Morning Report: Personal Incomes and Spending increase

Vital Statistics:

			Last	Change
S&P futures			2679	7.6
Eurostoxx index			385.1	0.46
Oil (WTI)			67.48	-0.62
10 Year Government Bond Yield				2.96%
30 Year fixed rate mortgage				4.56%

Stocks are higher after a slew of new mergers were announced. Bonds and MBS are up small. 

We have a big week ahead with the FOMC meeting starting tomorrow and the jobs report on Friday. The Street isn't looking for any changes in interest rates at the May meeting, but will focus as usual on the language of the statement. For the jobs report, the expectation is 190k new payrolls and 2.7% annual wage inflation. 

Pending Home Sales were up marginally from February, but were still down on an annual basis, according to NAR's Pending Home Sales Index. Bad weather in the Northeast pushed down pending sales, however all parts of the country were down. Again, blame low inventory and falling affordability. 

Personal Incomes rose 0.3% in March, while personal spending rose 0.4%, in line with expectations. The PCE index was up 2% YOY and the core PCE index was up 1.9%. This is the Fed's preferred measure of inflation and it is right where they are targeting. Income growth was the weakest since last Fall, however. 

The big debate right now is whether there is any slack in the labor market. Anecdotal evidence abounds that companies are struggling to find qualified workers. However, Econ 101 says that we should be seeing higher wage inflation as a result and that isn't happening (at least not yet). Some theories are claiming this is a market failure and that employers are artificially holding down wages (which is then used as an argument for more government intervention in the labor market). I suspect the issue is that there are three big forces holding back wage growth. First, inflation is low - if companies cannot pass along price increases to their customers, they aren't going to be raising wages. Second, lower wage jobs are competing with technology which is only getting better and cheaper. And finally, the long-term unemployed represent a reservoir of slack that companies know they can tap if needed. FWIW, I think the first and third explanations explain it, and find the idea that employers are somehow colluding to keep wages low to be wholly unconvincing. Take a look at the chart below, which shows wage increases versus inflation. You are seeing actual wage growth.

For now it looks like the 3% level in the 10 year has held. What drove the sell-off - it wasn't like there was anything data-wise to support it. JP Morgan blames CTAs using momentum strategies to short the 10-year. Chinese selling has also been rumored to be a factor. We won't be able to confirm or deny that theory for a couple of months. CTA funds have been net short Treasuries since September, however a momentum signal in mid-April caused people to pile into the trade and that apparently drove the late month sell-off. 

Steve Mnuchin is "cautiously optimistic" on trade talks with China. The subject will include intellectual property and joint ventures. 

Defect risk decreased on a MOM basis but was up on a YOY basis, according to the First American Loan Defect Index. The biggest risk was in the sand states, while the lowest risk was in the Rust Belt. 

Morning Report: Incomes and spending rise

Vital Statistics:

	Last	Change
S&P Futures	2689.8	2.0
Eurostoxx Index	390.0	-0.7
Oil (WTI)	58.0	-0.4
US dollar index	86.8	0.0
10 Year Govt Bond Yield	2.49%
Current Coupon Fannie Mae TBA	102.531
Current Coupon Ginnie Mae TBA	103.375
30 Year Fixed Rate Mortgage	3.88

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

This should be a relatively quiet day as bonds close early heading into the long holiday weekend. 

Durable Goods orders increase 1.3% MOM / 8.2% YOY in November, coming in below analyst estimates. A surge in aircraft orders drove the increase. Core capital goods orders (a good proxy for business capital expenditures) rose 8.1% YOY. 

Personal incomes rose 0.3% in October, slightly below the Street estimate of 0.4%. Consumer spending was better than expected, rising smartly at 0.6%. Inflation remains nowhere to be found, with the core PCE up 0.1% MOM and 1.5% YOY. The low inflation numbers certainly give the Fed some breathing room, although tax reform will probably push them to be more aggressive. Especially since 9 companies so far have announced wage increases based on tax reform. 

The Fed Funds futures are currently handicapping a 5% probability of no hikes in 2018, a 21% probability of a single 25 basis point hike, a 35% chance of 50, a 27% chance of 75, and a 10% chance of 100. 

Bitcoin is crashing right now, down 25% from yesterday. I was asked how Bitcoin would affect the real estate market.  My view was that Bitcoin is simply so volatile that I cannot imagine both a buyer and seller being comfortable quoting a house in bitcoin. I just don't see someone trying to sell their house for 25 bitcoin. Second, the financing has to be in dollars as no banks lend in bitcoin yet, and I cannot imagine what the interest rate for a bitcoin loan would be. So no, it may be accepted by your local store, however it is more of a novelty at this point. Will that change? Who knows? Will Bitcoin be dominant cryptocurrency or will it be like Classmates.com or MySpace - early adopters that got crushed later on by Facebook? 

Bloomberg takes a look at the state of housing entering 2018. Tight inventory, builder confidence, and a growing economy point to a strong housing market next year. On the other side of the coin, the drop in the mortgage interest deduction could hurt homes at the top end, while the larger standard deduction may lower the incentive to buy versus rent for many at the lower end of the income scale. IMO, the negatives are marginal compared to the positives. 

Don't forget, housing's contribution to GDP is way, way below historical levels. If 2018 is the year homebuilding finally breaks out, it will have an ousized effect on GDP growth. Labor shortages might be the bottleneck, but as wages rise, they attract new workers so that state of affairs doesn't last long. Swinging a hammer pays a lot more than slinging burgers.

90 day delinquencies spiked in November, according to Black Knight Financial Services. 85% of the spike is attributed to the hurricanes, so it doesn't really tell us anything about the state of the economy.

Finally, happy holidays to all!

Morning Report: Personal Spending rises smartly on vehicle sales

Vital Statistics:

	Last	Change
S&P Futures	2572.3	-6.3
Eurostoxx Index	393.6	0.2
Oil (WTI)	54.1	0.2
US dollar index	87.7	0.4
10 Year Govt Bond Yield	2.39%
Current Coupon Fannie Mae TBA	102.875
Current Coupon Ginnie Mae TBA	103.938
30 Year Fixed Rate Mortgage	4

Stocks are down this morning on no real news. Bonds and MBS are up.

This week will have a lot of market-moving potential, between the FOMC meeting and the jobs report. We will also get productivity and employment costs, two numbers the Fed monitors closely. 

Personal incomes rose 0.4%, while spending rose 1%. Wages and salaries increased 0.4%. Inflation remains under the Fed's target, but it did pick up in September to 1.6% on higher food and energy prices. The core rate increased 1.3%. A bump up in motor vehicle spending was behind the strong spending number, however that could be replacement activity for areas affected by the hurricanes in September. Regardless, it was the strongest jump in vehicle sales since "Cash for Clunkers" in early 2009. 

Donald Trump is leaning towards Jerome Powell to run the Fed after Janet Yellen's term expires in February. Jerome Powell is the economists' choice and will probably continue on the same path that has already been established: gradual rate increases and a gradual tapering of QE. “People are anxiously awaiting my decision as to who the next head of the Fed will be,” Trump said an Instagram video Friday. Historically, nobody pays too much attention to who runs the Fed aside from bankers and financial economists. Reagan jammed Paul Volcker's re-appointment in an unrelated radio address from Camp David. He even joked before the big announcement that "I have a story that will crack this town wide open" 

Home price appreciation continues, as the Black Knight Home Price Index rose .2% in August and is up 6.2% YOY. New York (!) was one of the fast growing states, rising 1.6%. Georgia, Maryland and Virginia saw slight declines. Seattle continues to astound, with prices up 12% YTD and up 14% YOY. 

We should get more details on tax reform this week, and we have been getting a lot of mixed signals and trial balloons. After talk about limiting 401k contributions, now the talk is of increasing the deduction to $20k. On the state and local tax deduction, it looks like property taxes may still be deductible, but state taxes will not be. Stay tuned. 

There is a big merger in the homebuilder space this morning: Lennar and CalAtlantic will merge which will create the US's biggest homebuilder by revenue. 

Morning Report: Spending and Incomes rise smartly

Vital Statistics:

	Last	Change
S&P Futures	2462.3	6.5
Eurostoxx Index	374.1	3.1
Oil (WTI)	46.3	0.3
US dollar index	86.1	0.2
10 Year Govt Bond Yield	2.14%
Current Coupon Fannie Mae TBA	103.33
Current Coupon Ginnie Mae TBA	104.21
30 Year Fixed Rate Mortgage	3.86

Stocks are up this morning on end-of-month window dressing. Bonds and MBS are flat. 

Personal incomes rose 0.4% in July, while personal spending rose 0.3%. The PCE index (the Fed's preferred measure for inflation) rose 0.1% MOM and 1.4% YOY. Good report for stock bulls in that incomes and spending are rising smartly while low inflation keeps the Fed at bay. The December Fed Funds futures are currently predicting a 36% chance of a rate hike at the December meeting and virtually no chance of a hike at the September meeting. 

Pending Home sales fell again in July, for the fourth time in five months as tight inventory reduced contract activity. Since bottoming 5 years ago, home prices are up 38% while incomes are only up about a third of that. While that would imply home affordability is getting worse, we are still quite affordable (as far as mortgage payment to income ratios) than we have been historically. It turns out that interest rates matter more than prices when it comes to affordability. 

Job cuts rose to 33,825 in August according to the Challenger and Gray Job Cuts report. This is an uptick from July, and a slight uptick on a YOY basis. Retail and construction (surprisingly) were the areas hit. A number in the low 30ks is generally a pretty strong number historically. Don't forget, these are job cut announcements based on press releases. They may never actually happen. 

Initial Jobless Claims were flat at 236,000 last week, which is still an exceptionally strong number. 

The Chicago PMI was unchanged at a strong 58.9 last month. New orders and production rose, while employment contracted. Another possible sign of a slowdown in the labor market? 

Congress may tie Harvey funding to a debt ceiling increase to make it palatable for all parties to vote for it. If there is going to be a fight over spending increases, the wall, and the debt ceiling, it will happen at the end of the year, not now. Note that Harvey's costs will also complicate tax reform. 

Fannie, Fred, and FHA have announced they will offer forbearance for at least 90 days for homeowners in Houston who were affected by Harvey. 

The CFPB has released its planned changes to TRID. These changes go into the Federal Register on October 10, however they are not mandatory until 10/1/18. 

The hits keep coming for Wells. An expanded review of fake accounts increased the estimate to 3.5 million. They are also being sued for charging improper lock extension fees. This will certainly be an obstacle for Republicans who want to argue for loosened financial regulation. For the most part, it seems that any regulatory relief will be directed towards the smaller community banks who have been hit the hardest with increased compliance costs. There is still very little sympathy in Washington for the big money center banks. 

Morning Report: Blue Apron IPO demonstrates shift on Wall Street

Vital Statistics:

	Last	Change
S&P Futures	2423.5	3.8
Eurostoxx Index	382.0	1.3
Oil (WTI)	45.2	0.2
US dollar index	87.8	0.1
10 Year Govt Bond Yield	2.28%
Current Coupon Fannie Mae TBA	102.88
Current Coupon Ginnie Mae TBA	103.75
30 Year Fixed Rate Mortgage	4

Stocks are higher this morning after yesterday's bloodbath. Bonds and MBS are down as well.

Should be a relatively quiet day ahead of the July 4 weekend. Expect liquidity to dry up in the bond market as most of the Street will be on the LIE by noon.

Consumer sentiment increased in June, according to the University of Michigan survey, while the Chicago PMI also jumped. 

Personal incomes rose 0.4% in May, while spending rose 0.1%. Inflation remained muted as the core PCE index (the preferred inflation measurement for the Fed) rose 0.1% MOM and 1.4% YOY. The increased spending was driven primarily by utility spending, so it isn't that great of an indicator for the economy going forward. The savings rate increased to 5.5%, and has rebounded from the lows of the bubble years. The increase in the savings rate represents the de-leveraging of the American consumer, which does depress GDP in the near term.

Regulatory issues are restricting mortgage credit, according to Treasury. This is causing people at the lower end of the credit spectrum to be shut out of the mortgage market. The recommendations largely involve clarifying QM and TRID rules to make them less uncertain, which drives risk-averse behavior out of lenders. They also propose a moratorium on new servicing rules. They also recommend revising or repealing the residential mortgage risk retention requirement, which has more or less shut down the private label MBS market. The goal of this is to (a) increase credit, and (b) draw private capital into the market. As of now, the US taxpayer bears pretty much all of the credit risk of new origination. 

Unicredito Bank's Chief Economists sees the US unemployment rate falling to 3%. If you believe the Phillips Curve, that level should trigger inflation, however we have so much slack in the labor market with the long-term unemployed we still might not see much wage inflation. Janet Yellen has already said the Fed is willing to let the employment market "run hot." At any rate, the Fed is just moving from "ultra-accommodative" to simply "accommodative."

Blue Apron priced its IPO at the lower end of its reduced range and broke price (i.e traded lower than the IPO price) in the aftermarket. Old-timers might remember the days when something like that was a huge embarrassment for the issuing bank. For the most part, getting in on a IPO typically meant at least a 20% pop on the first day of trading. The behavior of APRN represents the change in the landscape in investment banking over the past 20 years. 20 years ago, IPOs were priced that way in order to reward the buy side for their trading business. Since issuers used investment banking services only sporadically, and the investment banks dealt with the big mutual funds every day, the banks were more concerned with making sure that the buy side was happy and therefore under-priced IPOs (which means the issuer was leaving money on the table). Fast forward 20 years, and trading commissions are now 5% - 10% of what they used to be. Nowadays the banks are more worried about keeping the issuers happy, which means IPOs are no longer underpriced. Which is why IPOs are no longer the free money trade they used to be. 

Morning Report: Incomes and spending rise

Vital Statistics:

	Last	Change
S&P Futures	2281.5	-7.5
Eurostoxx Index	364.2	-2.2
Oil (WTI)	53.1	0.0
US dollar index	91.4	0.0
10 Year Govt Bond Yield	2.48%
Current Coupon Fannie Mae TBA	102.1
Current Coupon Ginnie Mae TBA	103.2
30 Year Fixed Rate Mortgage	4.16

Dow 20,000 hats are off this morning as corporate earnings continue to come in. Bonds and MBS are up.

Donald Trump temporarily restricted immigration from 7 countries over the weekend until new vetting procedures are put in place. This story dominated the news cycle. 

Personal Incomes rose in December by 0.3% while spending rose 0.5%. The core PCE index (the Fed's preferred measure of inflation) is up 1.7% YOY. 

Pending Home Sales increased in December, according to NAR. The challenge for 2017 will be increasing inventory enough to offset higher borrowing costs. NAR is forecasting housing starts to increase 8% this year to 1.26 million. Normalcy is closer to 1.5 million, so we have a ways to go there. 

We have a big week for data, with the FOMC meeting and the jobs report on Friday. We also get productivity and employment costs, which is another huge number. We are also in the middle of earnings season with several heavyweights reporting this week. 

Steve Mnuchin doesn't appear to be interested in removing the Volcker Rule, which prohibits banks with FDIC backing to conduct proprietary trading. He does believe that it has restricted market liquidity in its implementation however and he is interested in tweaking it. Overall, it looks like Dodd-Frank will be fixed but not repealed. 

A war is brewing over the state of the CFPB. Donald Trump has yet to weigh in on the agency or the fate of Richard Cordray. Also, it is looking like the CFPB will be remade into a bipartisan board as well. 

80% of all mortgage borrowers are completely honest on their loan applications, according to a study by UBS. The inaccuracies generally fall into four buckets: overstated income, underreported debt, underreported expenses, and overstated assets. 

The NAR's quarterly survey of mortgage lenders is out, and problems with appraisers (or lack thereof) dominate the headaches. Over half of all respondents reported issues in this area, with 11% characterizing them as significant. One problem is the lack of new entrants, however 28% of lenders won't accept an appraisal done by a trainee, and 44% require direct supervision of all aspects performed by a trainee. Non-QM lending fell slightly during the quarter, however investor demand for the product is rising. Rising rates are expected to have some effect on purchase demand, however there is such tight supply that it shouldn't affect volumes overall. 

Home prices are now within 0.3% of their peaks on a national level according to Black Knight Financial Services. 

Morning Report: Incomes up, spending flat

Vital Statistics:

	Last	Change
S&P Futures	2150.0	1.0
Eurostoxx Index	340.9	-2.0
Oil (WTI)	47.9	0.0
US dollar index	86.6	0.4
10 Year Govt Bond Yield	1.55%
Current Coupon Fannie Mae TBA	103.3
Current Coupon Ginnie Mae TBA	104.2
30 Year Fixed Rate Mortgage	3.47

Stocks are lower this morning as the markets fret about Deutsche Bank. Bonds and MBS are up on the risk-off trade.

Deutsche Bank, which is being fined by the US government for $14 billion is starting to see some hedge fund clients back away from it. While it probably doesn't really pose any systemic risk (the US government isn't about to bankrupt German's biggest bank) it will cause a flight to safety, which will push down Treasury yields. If this snowballs, look for more easing out of the ECB, and potentially another excuse for the Fed to stand pat. 

Personal Incomes rose 0.2% last month while personal spending was flat. The core personal consumption expenditure index (the Fed's preferred inflation measure) rose 1.7% YOY, which is below the Fed's 2% inflation target. Larry Summers says income inequality is depressing spending by about 3%. 

The Chicago Purchasing Manager Index rose in September. 

Consumer confidence improved in September.

Janet Yellen mused about the Fed buying corporate bonds and stocks in order to respond to a downturn after they have hoovered up all the government debt out there. 

Seriously delinquent loans fell to 1.24% in August, the lowest level since April 2008. Pre-crisis it was below 1%. 

Morning Report: Spending and incomes rise

Vital Statistics:

	Last	Change	Percent
S&P Futures	2099.8	2.5	0.12%
Eurostoxx Index	3079.7	-10.3	-0.33%
Oil (WTI)	49.59	0.3	0.53%
LIBOR	0.673	-0.001	-0.15%
US Dollar Index (DXY)	95.65	0.126	0.13%
10 Year Govt Bond Yield	1.89%	0.04%
Current Coupon Ginnie Mae TBA	105.5
Current Coupon Fannie Mae TBA	104.5
BankRate 30 Year Fixed Rate Mortgage	3.65

Markets are up this morning after Chinese stocks rallied overnight. Bonds and MBS are down.

The second revision to first quarter GDP came in at 0.8%, slightly below the Street estimate of 0.9%. This was an upward revision from the initial 0.5% estimate. 

Personal incomes rose 0.4% in April, in line with expectations. Personal spending rose 1%, which topped the 0.7% estimate. The personal consumption expenditures index (which is the inflation measure preferred by the Fed) rose 0.2% month-over-month and is up 1.6% annualized. We are seeing some sell-side firms take up their second quarter GDP estimates on this number. 

Home prices rose 0.9% MOM and 5.4% YOY, according to the Case-Shiller Home Price Index. This was slightly ahead of estimates. An improving labor market along with tight inventory is driving prices higher. 

In other economic data, both the Chicago Purchasing manager index and the consumer confidence index fell. 

The highlight of this short week will be the jobs report on Friday, which will be the last big data point before the FOMC meeting in a couple of weeks. The number to watch: average hourly earnings. Average hourly earnings growth has been accelerating over the past 6 months or so, to around 2.5%. You can see the trend in average hourly earnings growth in the chart below: 

On Friday, Janet Yellen hinted that the next rate hike is probably at the June or July FOMC meetings. 

Morning Report: Personal income and personal spending numbers disappoint

Vital Statistics:

	Last	Change	Percent
S&P Futures	2087.0	4.0	0.19%
Eurostoxx Index	3404.9	-8.5	-0.25%
Oil (WTI)	46.14	0.1	0.17%
LIBOR	0.322	-0.002	-0.62%
US Dollar Index (DXY)	97.04	-0.239	-0.25%
10 Year Govt Bond Yield	2.16%	-0.01%
Current Coupon Ginnie Mae TBA	104.4
Current Coupon Fannie Mae TBA	104
BankRate 30 Year Fixed Rate Mortgage	3.83

Markets are higher this morning in spite of some disappointing spending and income numbers. Bonds and MBS are flat.

Personal Income rose 0.1% in September and personal spending rose 0.1% as well. Both numbers were below the 0.2% Street estimates. The core personal consumption expenditure index rose 0.1% in September and is up 1.3% year-over-year. The savings rate increased to 4.8% from 4.7%, a sign that consumers are still de-leveraging. Economic optimists are going to point to the turmoil in the financial markets as the reason for the weak numbers. Economic pessimists are worried about entering another recession. 

The employment cost index rose 0.6% in the third quarter, in line with expectations. This is an uptick from the June quarter, which was the lowest reading since 1982. On an annual basis, wages and salaries increased 2%. while benefit costs increased 1.8%. The labor market is tight for skilled labor, especially construction. 

Pending Home Sales fell 2.3% in September, according to the NAR. Blame low inventory, especially at the lower price points. 

The Chicago Purchasing Managers index jumped in October. Production and new orders drove the increase, which is a positive sign for the economy. 

Consumer sentiment dipped in October, according the University of Michigan survey. 

Congress passed a bipartisan 2 year deal that raises the debt ceiling and eliminates the sequester. This takes any government shutdown worries off the table.

As we approach Halloween weekend, Bankrate takes a look at the states with the highest zombie foreclosures... Needless to say, they are concentrated in the Northeast and the rust belt. 

Stock certificates from the tech stocks of yesteryear, inlcuding Computing Tabulating Recording Company (IBM) and The Haloid Company (Xerox).

Morning Report: New Speaker and the markets

Vital Statistics:

	Last	Change	Percent
S&P Futures	1907.4	-11.8	-0.61%
Eurostoxx Index	3063.0	-50.2	-1.61%
Oil (WTI)	44.56	-1.1	-2.49%
LIBOR	0.326	0.000	-0.09%
US Dollar Index (DXY)	96.46	0.188	0.20%
10 Year Govt Bond Yield	2.14%	-0.02%
Current Coupon Ginnie Mae TBA	104.3	0.1
Current Coupon Fannie Mae TBA	103.9	0.0
BankRate 30 Year Fixed Rate Mortgage	3.83

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

We have some important data this week, with construction spending, the ISM data and the jobs report on Friday. The market is forecasting a jump in wage inflation and that will be the number everyone is going to focus on. 

Personal Spending rose 0.4% and Personal Income rose 0.3% in August. Inflation came in at 0.1% month-over-month and up 1.3% year-over-year. 

Pending Home Sales fell 1.4% in August, but are up 6.7% year-over-year. 

The Dallas Fed Manufacturing Index came in less negative than forecast. 

On Friday, Speaker of the House John Boehner announced he was resigning. At the margin, it probably means a clean continuing resolution (in other words, no government shutdown). This isn't going to matter to the markets one way or another - they recognize government shutdowns and debt ceiling fights as what they are: a chance for politicians to posture, and otherwise something to ignore. 

The favorite to replace Boehner is Kevin McCarthy from California. 

Speaking of government shutdowns and the debt ceiling, it does have an effect on the bond markets. The debt ceiling's proximity means the government has to issue less T-bills than it ordinarily would, which makes them scarce and therefore they have ultra-low interest rates. This is bad news for money market funds and other savers. That said, ZIRP is the primary reason the issue. 

Morning Report: personal incomes and personal spending rises

Vital Statistics:

	Last	Change	Percent
S&P Futures	2097.1	-1.3	-0.06%
Eurostoxx Index	3636.8	36.2	1.00%
Oil (WTI)	46.16	-1.0	-2.04%
LIBOR	0.309	0.009	2.83%
US Dollar Index (DXY)	97.49	0.149	0.15%
10 Year Govt Bond Yield	2.20%	0.02%
Current Coupon Ginnie Mae TBA	104.5	0.5
Current Coupon Fannie Mae TBA	103.9	0.5
BankRate 30 Year Fixed Rate Mortgage	3.9

Markets are lower this morning after Chinese and Greek stocks fell overnight. Bonds and MBS are down small.

Personal Incomes rose 0.4% in June, beating the 0.3% street forecast. Personal spending rose 0.2%, in line with estimates. May's blockbuster 0.9% increase was revised downward to 0.7%. The PCE Deflator (the inflation measure preferred by the Fed) rose 1.3%, still well below their 2% target rate. 

Auto sales will be coming in drip-by-drip during the day. Ford reported 5% increase in light vehicle sales, better than the 1.8% estimate. Auto sales have been doing well as of late as the average age of a car on the road in the US has hit 11.4 years, which is a record. The next big "tell" on spending will be the back-to-school shopping season, which is right around the corner. 

Obama is set to unveil new emissions limits for utilities today. Supposedly they go farther than earlier proposals. Will undoubtedly raise prices and slow the migration of manufacturing back to the US. Note industry and states aren't taking this lying down. Cheap energy is the US offset to cheap labor overseas. Note that coal miner Alpha Natural Resources filed for Ch. 11 bankruptcy this morning..

The ISM July Manufacturing Index fell to 52.7 in July. Production-related indicators rose, however employment and exports fell. 

Construction spending rose 0.1% in June, much lower than expectations, however May was revised upward from 0.8% to 1.8%. Residential construction is up 0.4% month-over-month and 13% year-over-year. 

We will get the all-important jobs report on Friday. The Fed will get one more jobs report before the September FOMC meeting. The Street has handicapped the chance of a hike as a coin toss. The stock market remains sanguine about rate hikes - the VIX (a measure of fear in the marketplace) is bouncing along the bottom. There is an old market saw: "VIX is high, time to buy. VIX is low, time to go." There is a lot of complacency with stocks right now. Below is a chart of the VIX over time. It hit 80 during the financial crisis. Given the short shelf life of traders (by the time you are 40, you are a senior citizen), there is an entire generation of traders who have never been through a tightening cycle. This could get interesting. 

Note that Blackrock is forecasting a 5% - 10% correction when the Fed starts raising rates. 

Morning Report - Economic data dump and the FOMC

Vital Statistics:

	Last	Change	Percent
S&P Futures	2090.8	-8.2	-0.39%
Eurostoxx Index	3632.6	15.5	0.43%
Oil (WTI)	59.16	0.6	0.99%
LIBOR	0.278	-0.001	-0.30%
US Dollar Index (DXY)	95.09	-0.124	-0.13%
10 Year Govt Bond Yield	2.10%	0.06%
Current Coupon Ginnie Mae TBA	102.7	0.0
Current Coupon Fannie Mae TBA	101.5	-0.3
BankRate 30 Year Fixed Rate Mortgage	3.86

Stocks are lower this morning on no real news. Bonds and MBS are down as European bonds continue to sell off.

European bonds have been selling off as fast money gets caught on the wrong side of the boat. This is pushing up Treasury yields, which should be moving down based on some of the economic data lately. 

There is a lot of economic data this morning. Initial Jobless Claims fell to 262,000, the lowest reading in 15 years. The ISM Milwaukee index fell to 48.08. The Bloomberg Consumer Comfort Index fell to 44.7 and the Chicago Purchasing Manager Index rose to 52.3.

The Employment Cost Index rose .7% in Q1. Wages and Salaries increased .7%, while benefits increased .6%. On an annualized basis, wages and salaries were up 2.6%, while benefits were up 2.7%. This is a big jump from the fourth quarter reading of 2.1%, and the average over the past few years of around 2%. One data point does not make a trend, but economically this is encouraging - wage growth has been a long time coming. 

Personal Income was flat in March, however compensation was up .2%. Personal spending rose to 0.4%, and the savings rate dipped slightly to 5.3%. The savings rate has been trending upward however, as people use some of the added income to pay off debt. The increase in spending is an encouraging data point. 

Inflation remains low, using the Fed's preferred inflation measure, personal consumption expenditures. On a year-over-year basis, the core number is up 1.3%, well below their 2% target. Given the weak Q1 GDP number and the weak inflation numbers, I find it hard to imagine the Fed moving in June. 

The FOMC statement was pretty bland, and we didn't see much of a reaction. The slowdown was attributed largely to "transitory factors." On rate hikes: "The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term." Given unemployment is back at normal levels, they are probably looking at wage growth as their key metric. 

The Bernank is now an advisor to PIMCO, as well as Citadel. Bond managers will be like: "Hey Ben, can you take Janet's temperature on a June rate hike?"

Household formation increased at an annual rate of 1.5 million in Q1, even as the homeownership rate dipped. This is good news for landlords, however it isn't spilling over to residential construction yet, with housing starts still mired about 70% of normalcy. 

Morning Report - Ben Bernanke has a blog

Vital Statistics:

	Last	Change	Percent
S&P Futures	2075.1	22.4	1.17%
Eurostoxx Index	3668.4	-1.4	-0.04%
Oil (WTI)	50.85	-0.6	-1.13%
LIBOR	0.269	-0.001	-0.30%
US Dollar Index (DXY)	97.28	-0.152	-0.16%
10 Year Govt Bond Yield	1.98%	-0.01%
Current Coupon Ginnie Mae TBA	102.5	0.0
Current Coupon Fannie Mae TBA	101.9	0.2
BankRate 30 Year Fixed Rate Mortgage	3.82

Markets are higher this morning on overseas strength. Bonds and MBS are up small.

Personal Income came in at .4%, higher than the Street estimate. Personal Spending however disappointed. The PCE Core rate (the inflation rate preferred by the Fed) came in at 1.4%, lower than the Fed's 2% target.

Pending Home Sales rose 3.1% in February, higher than the estimate. The Northeast was affected by the weather, but the Midwest jumped. February is a short month and during the seasonal slow period, so it is hard to read too much into these numbers.

Beard has a blog. Supposedly he will dish on his critics and go after the "audit the Fed" crowd. It might be interesting as a "Talking Points Memo" on monetary policy, where surrogates argue with critics, leaving the official participants out of it.