The Consumer Price Index rose 0.4% to a year-over-year increase of 1.9%, due in part to a spike in gas prices–which are up 6.3% from January 2017.  Compared to a few years back, of course, it’s still a bargain at the pump.  I think that I’m paying about half of what I was to sink 20 gallons of premium into my SUV back in 2013.  So you won’t hear any complaints from me right now.

In broader terms though, higher oil and gas prices lead to higher costs to produce and distribute goods, and that means inflation.  Moderated inflation is what the Fed is looking for before raising rates again, but I believe that it will take more several months (and many more signs of increasing costs) before the Fed has sufficient argument to make a move of any kind.

Just like that, school is back in session.  It was a great summer vacation!  Our family did a lot of fun things and I enjoyed sleeping in on a regular basis, staying up late, and relaxing a lot more.  But now it’s time to get back on a schedule.  It’s also time to pay the credit card bill for all the back-to-school shopping that was required to get four boys outfitted for learning.  As a nation, our back-to-school spending will hit $83.6 billion this year, a marked increase from last year’s $75.8 billion in clothes, shoes, pencils, and paper.

Mortgage bonds are trading sideways, keeping interest rates steady.  

Mother’s Day is this weekend, and since you all have a mom, I thought that this would be a nice public service reminder.  Information released this morning shows that your Mother’s Day gift is going to cost 2.2% more than it did last year, unless you are buying mom a car.  In that case it’ll set you back 3.6% more.  Add in the rising cost of fuel and insurance and you are better off gifting Mom this classy mug.  There’s a positive message on it, and a flower.

Just like Mom with her new mug, interest rates are pretty happy this morning.  Despite upward pressures for the last month, the relatively low inflation numbers have put a spring in the step of Bond traders, who are pushing for lower interest rates.  It’s another gift that just keeps on giving.   

Mortgage pricing slipped under the 100 day moving average yesterday.  The last time that happened was October 5, and rates moved up about 1/4% over the next six weeks.  Pricing has declined again this morning.  Although we look at the technical picture only in the absence of “real” news (as opposed to “fake news”), movements like today have a marked impact on direction of interest rates.  Evidence of economic growth (or at least the hope for growth) will be required to see interest rates move meaningfully higher from here.  Such proof typically comes slowly over time.  Here is today’s data:

The Producer Price Index rose 0.5% last month, to a year-over-year increase of 2.5%.  Increased manufacturer’s costs do not always lead to increased consumer costs, but we’ll get that number tomorrow.  Also, Initial Jobless Claims were reported at 236,000; a slight drop from last week’s 238,000.  The employment picture keeps getting better.

The 39 page Jobs Report released today by the Bureau of Labor showed many, many boring graphs and charts.  It also showed that the Unemployment Rate dropped to 4.4%, which is the lowest finding in a decade.  Ironically, the Labor Force Participation Rate is also at a 10 year low 62.9%, meaning that even though folks aren’t claiming to be “unemployed”, fewer Americans are working now than at any time since 2007.  Less demand for jobs means that employers need to pay more to keep their talent, consequently, wages rose 2.5% from this time last year to a cushy $26.19 per hour.  Some talking calculators say that an economy in recovery should be experiencing a 3-4% annual wage growth.  Where some surmise that economic growth trails wage increases by several years, we might conclude that we are still a ways away from any real threat of widespread inflation.

A little bit of Cinco de Mayo trivia: Foreign-born workers account for 17% of the total workforce in the United States, and 50% of those in this demographic came into this world in Mexico.  If you think that 7.5% is a big population, consider that the state of California by itself accounts of almost 13% of the total population of the United States. Just a bit of trivial information, that’s all. 

Yesterday the Fed left interest rates in place.  Ironically, this puts upward pressure on mortgage bonds.  The 10 Year has risen to 2.36% this morning, the highest in a month.  The Fed commented that although GDP for the first quarter was only 0.7%, they have reason to believe that the second quarter will produce a 4.3% expansion rate.  That would net the growth for the year above the 2.0% target rate, and poise the economy for the two further rate hikes promised.

Tomorrow is the Jobs Report.  Like the expectation on GDP, last month’s measly 98,000 is anticipated to flourish to 180,000 new jobs created this month.  The Unemployment Rate is also expected to drop to 4.6%.  See you tomorrow!     

The proposed overhaul on income taxes is said to simplify what everyone pays.  Corporations will pay 15% instead of 35%.  Individuals will pay 0%, 10%, 25%, or 35%. The estate tax and the alternative minimum tax are also said to be eliminated.  Stocks have been down and bonds have been up since the plan was published.  Though the specifics weren’t yet worked out, I am certain that the IRS will continue to collect just as much out of you and me.

Pending Home Sales report a 0.8% drop from last month, where a 5.6% increase was logged.  Durable Goods also dropped from a 1.2% advance to 0.7%.

Freddie Mac reports that the average 30 year loan is going for 1.03% right now.  As usual, I am cheaper than that. 

The markets close early today, and will be closed tomorrow in honor of Good Friday.  Traders tend to hedge going into three day weekends, so there could be a little selloff today.  On top of that, you can see from the above graph that the pricing for mortgage funds is again at YTD highs and ripe for a correction.  To the contrary, and keeping us pegged at the current ceiling, are a couple of things:

1. Talking monetary policy last night, President Trump said that he favors low interest rates, thinks that the dollar is too strong, and is undecided on whether or not he will swap out the current Fed Chair when her term renews next year.

2. The Producer Price Index released this morning showed that the cost of making new stuff declined -0.1% last month.

3. Initial Jobless Claims are at low levels not seen in 40 years, when the population was not as numerous

Up until just a few years ago, I got all the “news” I needed from David Letterman.  Dave of course had a background as a serious news journalist, and brought enough current affairs into his opening monologue that I felt able to stay in touch with what was happening in the world without needing the likes of Dan Rather in my living room.  Nothing against Dan Rather of course, but the delivery method is just a little too dry for my taste.  Plus it was on the late show that I heard about Simon and Garfunkel getting back together for a reunion tour.  Their performance that night in 2003 was one of the most euphoric moments I have experienced being glued to a television.  Perhaps that says too much about where I lie on the “this is important/this is not important” spectrum.  But for me, that moment was as eventful as the biblical presage of the lamb and lion lying down together and enjoying a charger brimmed with alfalfa.  It could be that Art Garfunkel’s hairdo has always appeared sheep-like.  Yet again, I digress.

Things have changed, and today I watch the news to see what is going to happen to the financial markets as a result of votes cast at a session of Congress.  On the docket today is the possibility of a repeal of the Affordable Care Act.  There are 535 different agendas at play of course, but the major squabble here is some members want the federal government quit funding the ACA so that the savings allow for a tax cut.  This bold move is being acclaimed as neutral for the government’s checkbook, which is a step in the right direction with regards to the state of our current deficit.  Albeit neutral for the government, the effect that interests me for the purpose of this publication is what happens to interest rates.  Businesses paying less in payroll/benefit expenses and taxed profits would have a marked impact on corporate America’s bottom line.  As a result of higher retained earnings, stocks would soar even higher, most likely at the expense of bonds.  What that means for you and me is higher interest rates, coming slowly and surely.  “Still a man hears what he wants to hear and disregards the rest, ooh la la la la la la la” –Simon and Garfunkel “The Boxer”.    

I think that we can learn a lot by looking for patterns.  For example, from working in the same office building for the last 13 years, I have noted that it’s growing nearly impossible to turn left out of my building and onto State Street between 5:00 and 5:30 PM.  As a result, I either cut out early or stay late.  Looking at the pattern of the 10-Year Treasury Note Yield over the last 55 years, it has traded in a clearly defined downward channel for the most recent 35 years.  It’s possible that the yield continues to decline, but it’s more probable that the pattern is going to break to the upside in the next few weeks to months.  Currently, that red boundary to the north lies at 2.635%.  The 10 Year today is at 2.59%.  The Federal Open Market Committee meets today and tomorrow, and they are expected to announce a 0.25% increase in interest rates tomorrow that will push that blue squiggly line right up next to that 35-years-and-counting straight red line.  It will then only be a matter of time until it crosses the red line and, IMO, shoots straight up to 3.0%.  Catching a low interest rate on a mortgage is just like catching a break in traffic:  timing is everything.