The Economy and Bond Market
Bond yields moved higher across most of the Treasury curve, the exception being the 30-year bond, which rallied after strong auction results late in the week.
February retail sales rose 0.3 percent month over month and 3.9 percent year over year. Overall, retail sales continue to positively surprise when considering the high unemployment levels. Several factors may offer at least a partial explanation. Household net worth rose 1.3 percent in the fourth quarter and is now up 12.4 percent year over year. Tax refunds are also running ahead of last year by more than 7 percent. Another explanation may be tied to pent-up demandāafter 18 months of frugality, consumers may feel comfortable enough to spend again.
Strengths
- Retail sales in February were stronger than expected in virtually all areas.
- The U.S. Labor Department reported that job openings rose 7.6 percent in January, hitting an 11-month high.
- China released February economic data this week and it was generally stronger than expected. Retail sales rose 22.1 percent, money supply rose 25.5 percent and fixed asset investment rose 26.6 percent.
Weaknesses
- Along with the strong growth data out of China this week also came higher-than-expected inflation data. CPI rose 2.7 percent on a year-over-year basis and continues to stoke concerns of continued tightening measures from the government.
- University of Michigan Consumer Confidence modestly disappointed expectations.
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Opportunities
- If financial markets are a good mechanism for discounting the future, the future appears relatively robust. The markets have been able to shake off bad news relatively easily recently, probably a good sign for the economic recovery.
Threats
- When governments around the world begin to wind-down the monetary and fiscal stimulus programs put in place during the economic crisis, it will likely present a headwind for the economy.
