The Economy and Bond Market Cheat Sheet (March 7, 2011)
Treasury bond yields rose this week as the safe-haven buying from the Middle East and North African tensions reversed. The yield on the 10-year Treasury note closed at 3.49 percent, up 8 basis points for the week.
The graph below shows the U.S. Unemployment Rate as a percent of the labor force. The 192,000 increase in nonfarm payrolls reported in February helped the unemployment rate drop from 9 percent in January to 8.9 percent in February, the lowest level since April 2010.
Strengths
- Nonfarm payrolls accelerated to 192,000 in February, up from 63,000 in January. Although this was slightly below the 196,000 consensus, it was the largest increase in payrolls since May 2010.
- The February unemployment rate dropped to 8.9 percent from 9 percent in January and it was better than the 9.1 percent consensus.
- The ISM Manufacturing Index rose to the highest level in nearly seven years. Underlying data was also strong as the jobs sub-index hit a 38-year high. Factory data out of Europe and India also indicated continued strength in the manufacturing area.
- Initial jobless claims fell to 368,000, the lowest since May 2008.
- Factory orders in the U.S. rose 3.1 percent in January compared to December, the highest increase since September 2006 and above the 2.0 percent consensus.
Weaknesses
- U.S. gasoline prices averaged $3.37 according to AAA, an increase of 66.4 cents from a year ago.
- Consumer spending rose a modest 0.2 percent in January, the slowest since June.
Opportunities
- In an interesting twist, higher oil prices may actually act as a deflationary force if it materially slows the global economic growth.
Threats
- The economy appears to be performing better than many expected and could be a threat to fixed income markets as yields move higher in response.
