Friday, March 07, 2008
What A Beautiful Friday
The distribution is as expected. Retail down 34,000. Total service up 26,000. That includes government jobs rising 38,000. Professional and business services down 20,000. Total goods producing lost 89,000. In the narrative:
Most of the February decline was concentrated in durable goods manufacturing, as motor vehicles and parts (-13,000), furniture and related products (-6,000), and wood products (-5,000) lost jobs. Within nondurable goods, employment fell in printing and related support activities (-5,000).Construction lost 39,000 jobs according to the establishment survey. The revisions to the B/D model are kicking in here.
At this point I think the Fed's inflation worries will move to the back burner. The mortgage markets are deeply disrupted, but it is not an irrational disruption. It's based on the munis sucking up dollars and risk. Fannie released its new loan-level pricing adjustment matrix (pdf 6 pgs), including some for the new jumbo loans. Penalties start at credit scores below 680 and are hinged on LTVs above 70%. So if you have great credit it now pays off for you, but the price for poorer credit and not having at least a 20% downpayment is escalating to the sky. The credit crunch just hit.
This is going to take housing down by 10% nationwide. Probably 15% more before we're through. Most FTHB will have problems buying for a couple of years unless someone gives them the downpayment.
Fannie also says it won't buy the new FHA jumbos. They'll be buying fixed rates as of April 1st and ARMs as of May 1st under their own programs.
What we are seeing is a massive readjustment that no one thought could happen. Reality was lurking like an iceberg under a sea of complacency.
Calculated Risk post regarding Fed action. They are also trying for 100 billion in 28 day repos with just about any source of collateral. This is probably intended to substitute for the collapse in agency trading. It is going to be a long weekend for central bankers as the Fed says it is consulting with others.
So we should consider the recent months of the Fed dropping the funds rate and accepting pokemon cards as collateral as evidencing concern for inflation?
Just saying - I don't think they've been focused on inflation since, hmmm.. last August?
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