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Morning Report: More weak economic data


Vital Statistics:

Stocks are flat this morning after some weaker-than-expected economic data. Bonds and MBS are up.

Second quarter GDP was revised downward to 2.1% from 2.4%. Consumption was flat at 1.7%. The PCE Price Index was revised downward as well, with the headline number falling to 2.5% and the core number (ex-food and energy) falling to 3.7%.

Residential Construction continued to be a drag on GDP, extending its streak to 9 consecutive quarters. Given the action in the homebuilders, perhaps this is finally about to change, at long last.

The private sector added 177,000 jobs in August, according to the ADP Employment Report. This was below the consensus estimate of 200,000, and a touch higher than the 170,000 estimated in Friday’s jobs report. “This month’s numbers are consistent with the pace of job creation before the pandemic. After two years of exceptional gains tied to the recovery, we’re moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede.”

Most of the additions were in services, with trade / transportation and education / health leading the way. Leisure / hospitality increased as well, but it looks like the supply and demand of workers in this sector is becoming more balanced.

Job stayers saw a 5.9% increase in pay, the slowest growth since October 2021. Job changers saw a 9.5% increase.

The Dallas Fed Manufacturing Index fell six points to -11.2, the lowest since May of 2020. Pricing pressures were below historical averages, while wage growth did increase.

With these data points out there, I still don’t see how the Atlanta Fed sees Q3 GDP growth at 5.9%.

Mortgage applications increased 2.3% last week as purchases increased 2% and refis rose 3%. “Mortgage rates were mostly unchanged last week, with the 30-year fixed rate remaining at 7.31 percent – the highest since December 2000. Treasury yields peaked early in the week and did move lower by the end, which may have spurred some activity,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Mortgage applications for home purchases and refinances increased for the first time in five weeks but remained at low levels. Purchase applications increased but were still 27 percent lower than a year ago, as elevated mortgage rates and tight housing inventory continue to weigh on home buying activity.”

Pending home sales increased 0.9% MOM, according to the National Association of Realtors. Year-over-year, transactions fell 14%. The rate lock-in effect is a big issue, keeping people from selling their homes. “The small gain in contract signings shows the potential for further increases in light of the fact that many people have lost out on multiple home buying offers,” said NAR Chief Economist Lawrence Yun. “Jobs are being added and, thereby, enlarging the pool of prospective home buyers. However, rising mortgage rates and limited inventory have temporarily hindered the possibility of buying for many.”

ADP: Private Employment Increased 177,000 in August

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