The Economy and Bond Market Cheat Sheet (September 12, 2011)
This week the yield on the 10-year U.S. Treasury declined by 7 basis points to end the week at 1.92 percent.
As shown in the graph below, the number of people in the U.S. continuing to receive jobless benefits, although trending down since the peak in 2009, remains elevated relative to the levels existing in the years 2004 thru 2007. As of August 27, continuing claims fell by 30,000 to 3.72 million.
The continuing claims figure does not include the number of people receiving extended benefits under federal programs. In the week ended August 20, 3.6 million people were collecting emergency and extended payments.
Strengths
- The non-manufacturing ISM index increased to 53.3 in August from 52.7 in July, beating the consensus estimate of 51.0. A reading above 50 indicates that the service sector of the economy is expanding.
- The U.S. trade deficit shrank by 13.2 percent to $44.8 billion in July from a revised $51.6 billion in June. Expectations were for a $51.0 billion deficit.
- Economic activity expanded in all 12 Federal Reserve districts according to anecdotal reports in the Fed’s Beige Book report released this week. The modest recovery slowed or was very subdued in 7 of the districts.
Weaknesses
- Initial jobless claims rose by 2,000 to 414,000 in the week ended Sept 2. The consensus expectation was for a decline to 405,000.
- The Bloomberg Consumer Comfort Index was minus 49.3 in the week ended Sept 4 compared with minus 49.3 the previous week. The index has been below minus 40, the level associated with recessions or their aftermath, since the end of February.
- Mortgage applications decreased 4.9 percent in the week ended Sept.2, the third consecutive weekly decline. The refinancing index declined 6.3 percent, and the purchase index rose 0.2 percent, a second straight gain after reaching the lowest level since December 1996.
Opportunities
- With the economy weak and concerns brewing about an additional financial crisis, the Fed will remain accommodative for some time and bonds appear well supported in the current environment.
Threats
- There is a crisis of confidence in world leaders at the moment and the potential for another financial crisis is rising.
