Morning Report: The services economy decelerates again

Vital Statistics:

 LastChange
S&P futures4,112-4.75
Oil (WTI)80.71-0.25
10 year government bond yield 3.29%
30 year fixed rate mortgage 6.22%

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

The services economy expanded in March, albeit at a much slower rate than in February, according to the ISM Services Index. We saw pretty dramatic declines in new orders and a deceleration in prices. The employment index fell as well, which means the Fed should be pretty happy with these numbers. “There has been a pullback in the rate of growth for the services sector, attributed mainly to (1) a cooling off in the new orders growth rate, (2) an employment environment that varies by industry and (3) continued improvements in capacity and logistics, a positive impact on supplier performance. The majority of respondents report a positive outlook on business conditions.”

Lock volume rose 24% in March, according to the MCTLive Lock Index. Locks increased throughout all categories, with purchases up 23%, rate / term up 39% and cash-out refis up 28%. Part of this is of course seasonal, however lower interest rates are helping matters as well.

Western Alliance announced its earnings date and gave an update on its business. The company’s liquidity covers the number of uninsured deposits by 1.4x, and insured deposits increased to 68% of total deposits. Western Alliance is getting lumped in with Silicon Valley Bank, which is somewhat unfair given that SVB was kind of a one-trick pony and Western Alliance is more diversified with its mortgage ops. The Street expects WA to earn $9.11 this year, which puts the stock on a P/E of 3.2x with a 37% discount to book.

US employers announced 89,703 job cuts in March, according to outplacement firm Challenger, Gray and Christmas. This is up 15% from February and more than triple the number a year ago. “We know companies are approaching 2023 with caution, though the economy is still creating jobs. With rate hikes continuing and companies’ reigning in costs, the large-scale layoffs we are seeing will likely continue,” said Andrew Challenger, Senior Vice President of Challenger, Gray & Christmas, Inc. 38% of the cuts were in tech. Separately, initial jobless claims rose to 228k, which is further confirmation the labor economy is slowing down.