The Economy and Bond Market The 10-year U.S. Treasury note was relatively stable this week, with the yield decreasing by one basis point to end the week at 3.60 percent. As reported this week, real gross domestic product (real GDP) increased at an annual rate of 5.7 percent in the fourth quarter of 2009, besting the consensus estimate of 4.7 percent. This was the best performance since the third quarter of 2003. The figure below shows the annualized quarter-over-quarter percentage changes.
Strengths
- The Reuters/University of Michigan final index of consumer sentiment for January rose to 74.4, exceeding the consensus of 73.0 and the preliminary estimate of 72.8. This was the highest level in two years.
- The Chicago Purchasing Managers Index increased to 61.5 in January, higher than the consensus estimate of 57.2. This was the highest level since November 2005.
- The S&P Case-Shiller 20-city home price index for November rose a seasonally adjusted 0.24 percent from October, the sixth straight monthly gain. The index was down 5.32 percent year-over-year, the smallest year-over-year decline in two years.
- The Conference Board's index of consumer confidence rose to 55.9 in January from a revised 53.6 in December, besting the 53.5 median estimate of economists.
Weaknesses
- Durable goods orders for December rose 0.3 percent from November, less than the 2 percent advance expected by economists. Orders for durable goods excluding transportation increased by 0.9 percent, more that the 0.5 percent consensus.
- Initial jobless claims for the week ended January 23 were reported at 470,000, more than the 450,000 expected.
- December new home sales declined 7.6 percent month-over-month to 342,000, less than the forecast of 366,000.
- Sales of existing U.S. homes in December fell 16.7 percent from November levels to an annual rate of 5.45 million, worse than the consensus of 5.90 million. November sales had been helped by the government tax credit, which was originally scheduled to expire on November 30.
- The Richmond Fed's manufacturing index for the central Atlantic region for January came in at -2.00, slightly worse than the consensus estimate of 0.00. It did edge up a bit from December's index of -4.00. For each of the seven months prior to December, the index had been positive.
- The Mortgage Banker's Association index of mortgage applications for the week ended January 22 dropped by 10.9 percent after rising for the preceding three weeks.
Opportunities
- The fourth-quarter GDP of 5.7 percent reported this week provides another indication that the global economic recovery appears to be taking hold.
Threats Coordinated global removal of fiscal and monetary stimulus are the biggest threats to the financial markets.
