The Economy and Bond Market Radar (December 19, 2011)
Long-term Treasury yields ended the week sharply lower as the reprieve from the euro crisis was short lived. Ten-year Treasury yields fell decidedly below 2 percent and are at the lowest levels since early October.
Recent economic data has been mixed and global economic news flow has generally been weak. One positive outlier worth mentioning is initial jobless claims which have declined to the lowest level since 2008. Historically, initial jobless claims have been a good indicator on the overall economy, so the economy may be in better shape than many currently believe.
Strengths
- Initial jobless claims fell to the lowest level since May 2008.
- Several inflation measures were reported this week for November (Consumer Price Index, Producer Price Index and import prices) and all signaled flat to declining inflation trends.
- The National Federation of Independent Business’ November small business optimism index hit a 9-month high as strength was seen in many areas.
Weaknesses
- November Industrial production fell 0.2 percent.
- November retail sales were disappointing, rising a modest 0.2 percent.
- The excitement over the European Union (EU) accord that was reached last Friday barely lasted the weekend and sentiment turned sour this week.
Opportunities
- There is quite a bit of economic data due out next week with numerous housing measures, durable goods orders and leading indicators.
Threats
- The situation in Europe remains extremely fluid and negative news is almost expected at this point. Unfortunately it is politically driven and difficult to predict outcomes and ramifications.
