The Economy and Bond Market Diary (September 20, 2010)

The Economy and Bond Market Diary (September 20, 2010)

Treasury bond yields moved lower this week. The chart below shows the yield on the 10-year Treasury, which was 6 basis points lower for the week, ending at 2.74 percent. The yield is up about 27 basis points for the month of September to date.

Strengths

• U.S. retail sales for August rose 0.4 percent, slightly better that the 0.3 percent consensus and the second consecutive monthly gain. Sales excluding automobiles advanced 0.6 percent, twice the 0.3 percent consensus forecast.
• Initial jobless claims for the week ended September 11 dropped by 3,000 from the revised number for the prior week to 450,000, better that the 459,000 consensus.
• The U.S. government’s August budget deficit was $90.5 billion, less than the $95 billion median forecast by economists and down 13 percent from the $103.6 billion deficit in August 2009.

Weaknesses

• The New York Fed’s Empire State manufacturing index for September fell to 4.1 from 7.1 in August. While index readings above zero signal expansion, the report was below the consensus estimate of 8.0.
• The Philadelphia Federal Index for September rose to minus 0.7 from minus 7.7 in August, but it was below the consensus of a positive 0.5, and it was still in negative territory. Some economists consider the index as a gauge of sentiment among manufacturers in the region.
• Although confidence among U.S. small businesses rose in August for the first time in three months, the NFIB’s optimism index, which increased slightly to 88.8 from July’s 88.1 reading, is still in “recession territory” according to the report. The measure averaged 100.6 in the five years before the economic slump began in December 2007.
• The University of Michigan preliminary index of consumer sentiment for September fell to a 12-month low of 66.6 from 68.9 in August, and it was below the consensus estimate of 70.0.

Opportunities

• Inflation is unlikely to be a problem for some time and this gives central bankers and other policymakers around the world room for expansive policies.

Threats

• European financial concerns have intensified recently as the long-term solutions still appear elusive for many economies.