Fragility! The Federal Reserve Is Slow-Walking Its Shrinking Of Mortgage-backed Securities As M2 Money Growth Goes Negative (Mortgage Purchase Demand Down -37% Since Last Year And Down -45% Since February 5, 2021)

Starting in 2009 with the housing bubble burst and ensuing financial crisis, The Federal Reserve bought agency mortgage-backed securities (MBS) in an effort to provide stability to the then suffering housing and mortgage markets. Flash forward to today and The Federal Reserve still has $2.62 TRILLION in Agency MBS in its System Open Market holdings. And declining very slowly.

All this is happening as M2 Money growth YoY has gone negative and both mortgage rates and home price growth are slowing.

Is the US mortgage market that fragile that requires The Fed to support it?

The answer is yes if we look at the Mortgage Bankers Association weekly applications index. The Refinance Index increased 18 percent from the previous week and was 75 percent lower than the same week one year ago. The unadjusted Purchase Index increased 4 percent compared with the previous week and was 37 percent lower than the same week one year ago.

I noticed that Biden didn’t mention how mortgage purchase applications since he was installed as President have fallen -45%. Mortgage refi applications have dropped -88% since February 5, 2021.

At least the US house payment to income ratio has declined since the peak. But still higher than at the peak of the US housing bubble in 2006.

The Tighten Up! Banks Tightening Credit Boxes As Median Age Of US Homebuyers Rises From 31 To 47

The Federal Reserve is doing Archie Bell and The Drells “Do The Tighten Up!”

Over the fourth quarter, significant net shares of banks reported having tightened standards on C&I loans to firms of all sizes.

Banks also reported having tightened all queried terms on C&I loans to firms of all sizes.

Actually, banks are tightening standards across the various credit boxes.

And as banks tighten up their credit box, we are seeing the median age of US homebuyers rising from 31 to 47 years.

As banks tighten, we are seeing a slow down in the growth rate for C&I lending and 1-4 unit mortgage lending.

This is reminding me of Germany where you save for your entire life to buy a home.

Somehow, I don’t think Biden will mention any of this is his State of the Union address tonight.

About That Surprisingly Strong Jobs Report: 3.30% Growth In Jobs Added On YoY Basis As Fed Slow Walks Shrinking Balance Sheet (Negative REAL Hourly Earnings Growth Not Something To Brag About)

The Hill has an interesting story: 5 takeaways on a surprisingly strong jobs report.

“The U.S. economy added 517,000 jobs in January, more than doubling Wall Street expectations and turning up its nose at prognosticators of an imminent recession. The unemployment rate dropped to 3.4 percent, the lowest level since 1969. Analysts were expecting it to move in the opposite direction, ticking up to 3.6 percent.”

Yes, I was expecting U-3 unemployment to increase to 3.6% as well. What happened? Seasonal adjustments (BLS doens’t provide non-seasonally adjusted data). But the shocking headline (mostly due to seasonal adjustements) was not as surprising if we consider that jobs added in January grew at 3.309% year-over-year. Well, THAT isn’t all that surprising. Particularly since The Fed is slow walking its shrinking of The Fed balance sheet.

And with over 100 MILLION not in the labor force (apparently, the US labor force never really recovered from the Wuhan China virus), the U-3 unemployment rate touted by the media is misleading.

Bear in mind that employment is a LAGGING indicator. For example, the unemployment rate was 4.7% in November 2007 just prior to the beginning of the 2008-2009 Great Recession. So Biden’s bragging about the lowest unemployment rate since 1969 is meaningless in predicting recessions.

So, the January jobs report isn’t as surprising and strong as talking heads screamed about. I wish BLS would release non-seasonally adjusted (raw) data. But since we have a dysfunctional Federal government, I am not holding my breath.

And I wouldn’t consider averrage hourly earnings growth YoY of 4.42% when headline US inflation is 6.42% particularly brag worthy.

Of course, Biden lied about inheriting inflation from Trump. Inflation was 1.28% YoY in December 2020 just before Biden was sworn-in as President. Then again, Biden lies about everything. At least he just refused to comment on the Chinese Spy Balloons.

Strange Days! US Adds 517k Jobs In January While ADP Adds Only 106k Jobs (Avg Hourly Earnings At 4.4% YoY While Headline Inflation At 6.5%)

Strange days indeed!

Today’s jobs report from the Bureau of Labor Statists (BLS) was stunning. 517k jobs added! Very strange since the ADP jobs added report on Febuary 1st was only 106k. THAT is a huge discrepancy (probably a seasonal adjustment in the BLS reporting).

Average hourly earnings rose to 4.4% YoY. Too bad headline inflation is still roaring at 6.5%. So, the inflation tax is still overwhelming wage growth.

The spread between the January jobs report (BLS) and the ADP jobs added report (ADP) is similar to the infamous jobs report that the Philly Fed “corrected” (orange circle).

Here is the summary of the BLS numbers.

And on the strange jobs report, US Treasury 10-year yields are up 10+ basis points.

Where were the jobs added? How about “Hey Bartender!” since leisure and hospitality added 128k jobs in January.

Leisure and hospitality added 128,000 jobs in January compared with an average of 89,000 jobs per month in 2022. Over the month, food services and drinking places added 99,000 jobs, while employment continued to trend up in accommodation (+15,000).
In January, employment in professional and business services rose by 82,000, led by gains in professional, scientific, and technical services (+41,000). Job growth in professional and business services averaged 63,000 per month in 2022.
Government employment increased by 74,000 in January. Employment in state government education increased by 35,000, reflecting the return of university workers after a strike.
Health care added 58,000 jobs in January. Job growth occurred in ambulatory health care services (+30,000), nursing and residential care facilities (+17,000), and hospitals (+11,000).
Employment in retail trade rose by 30,000 in January, following little net growth in 2022 (an average of +7,000 per month). In January, job gains in general merchandise retailers (+16,000) and in furniture, home furnishings, electronics, and appliance retailers (+7,000) were partially offset by a decline in health and personal care retailers (-6,000).
Construction added 25,000 jobs in January, reflecting an employment gain in specialty trade contractors (+22,000). Employment in the construction industry grew by an average of 22,000 per month in 2022.
In January, transportation and warehousing added 23,000 jobs, the same as the industry’s average monthly gain in 2022. Over the month, employment in support activities for transportation increased by 7,000.
Employment in social assistance increased by 21,000 in January, little different from the 2022 average gain of 19,000 per month.
Manufacturing employment continued to trend up in January (+19,000). In 2022, manufacturing added an average of 33,000 jobs per month.
Employment showed little change over the month in other major industries, including mining, quarrying, and oil and gas extraction; wholesale trade; information; financial activities; and other services.

The source of the jobs miracle? Changes in how jobs are measured.

Changes to The Employment Situation Data |
| |
| Establishment survey data have been revised as a result of the annual benchmarking |
| process, the NAICS 2022 conversion, and the updating of seasonal adjustment factors. |
| Also, household survey data for January 2023 reflect updated population estimates. |
| See the notes at the end of this news release for more information. |
|_________________________________________________________

Fed Slows Rate Increases, Raises Only 25 Basis Points, As Expected (Future Rate Hikes Projected To Slow As Inflation Slows)

The Federal Reserve slowed its drive to rein in inflation and said further interest-rate hikes are in store as officials debate when to end their most aggressive tightening of credit in four decades.

Policymakers lifted the Fed’s target for its benchmark rate by a quarter percentage point to a range of 4.5% to 4.75%. The smaller move followed a half-point increase in December and four jumbo-sized 75 basis-point hikes prior to that.

The unanimous decision by the Federal Open Market Committee was in line with financial market expectations.

Markets are forecasting a pivot after the June meeting in 2023.

The face of The Federal Reserve. Although Yellen is now Biden’s Secretary of Treasury.

Slow Down! ADP Jobs Added Slows To 106k In January, Lowest Since August 2021

The US economy is slowing down. In fact, ADP jobs added just printed at 106k in January, the lowest reading since August 2021. ADP jobs added follows the slow down of M2 Money growth YoY as The Fed tightens its monetary policy.

Do I detect a trend (orange line)?

Speaking of trends, check out ISM Manufacturing New Orders. Lowest since Great Recession of 2008 (if I exclude the government economic shutdown Covid recession).

I doubt that January’s ADP report or the ISM Manufacturing report will be mentioned in Biden’s State of the Union address.

Fed Mission Accomplished? Fed Funds Target Rate Rises Above Inflation Rate As M2 Money Growth Sinks To -1.3% YoY (US Consumers Have Lost $4 Trillion In Real Disposable Income Under Biden)

The Federal Reserve’s Open Market Committee (FOMC) is meeting on Wednesday. What will they do?

First, The Fed Funds Target (upper bound) is above the Core US inflation rate YoY. Second, M2 Money growth YoY has slowed to -1.3%.

Of course, the members of the FOMC might decide that this is not enough and may keep raising rates and shrinking The Fed’s enormous balance sheet.

In the “Haven’t they suffered enough?” arena, US real disposable income has fallen by -21% since Biden was sworn-in as President.

On the other hand, the Taylor Rule is still pointing to a target rate of 10% (we aren’t even half way there at 4.50%).

Oh and the price of insuring against a US debt default remains elevated (since Biden and Schumer are baving like arrogant bullies) and are refusing to negotitate over spending cuts.

The 1Y CDS volatility cube indicates that it will all be over soon.

7 Months Of Night! US GDP Real Disposable Income Fell For 7 Straight Months As Fed Removes Punchbowl (Biden’s Economy Lost $4 TRILLION In Real Disposable Income Since March 2021, A -21% Loss)

Welcome to the wonderful world of Bidenomics, giving the US 40 year highs in inflation leading The Federal Reserve to remove its enormous monetary stimulus (known as “The Punch Bowl.”

I previously pointed out that US Real GDP was actually less than 1% year-over-year (YoY) in 2022, hardly a fantastic number given the trillions in Biden/Pelosi/Schumer spending (Omnibus, Infrastructure, etc) and Powell/Fed’s whopping monetary stimulus in 2020. But real disposable income, the amount households have left to spend after adjusting for inflation, had been falling for 7 straight months.

In fact, REAL disposable personal income peaked in March 2021, shortly after Biden was sworn-in as President in Janaury 2021 at $19,213.9 billion (or $19.214 TRILLION). As of December 2022, real personal disposable income had fallen to $15,213.0 or $15.213 TRILLION. That is a loss of $4 TRILLION since March 2021. Or a -21% Loss in Real Disposable Income.

Here is the campaign video for Joe Biden from 2020.

Biden’s campaign photo.

US Paid $853 BILLION In Interest On Its $31 TRILLION Debt In 2022 (More Than The US Defense Budget)

I was interviewed by James Rosen at Fox News on the exploding US debt and whether it is a problem. I said “Yes, the sheer size of the US debt load in unsustainable and will get worse if interest rates rise.” Well, here we are!

The US paid $853 billion in interest for the $31 trillion in debt in 2022.

That is more than the US Defense budget in 2023.

If the Fed keeps rates at at these levels (or higher), the US we will be at $1.2 trillion to $1.5 trillion in interest paid on the debt.

The US govt collects about $4.9 trillion in taxes.

Thanks for this, Biden, Pelosi, Schumer! Aka, The Spend Squad!

Kansas City Fed Services Survey Tanks To -11 In January As Fed Withdraws Monetary Punch Bowl (US Real GDP Was Only 0.959% YoY In 2022)

Kansas City is a wonderful city. But the KC Fed’s Services Survey is not. In fact, it plunged to -11 for January. Rough start to the new year.

The decline in the KC Fed survery mirrors that of other regional Fed indices, indicating a slowdown in the US economy as The Fed withdraws the monetary punch bowl,

Despite the hoopla, remember that US Real GDP growth only grew at less than 1% on a year-over-year basis in 2022.

Apparently, The Federal Reserve doesn’t have a whole lotta love for middle class America.