Econ Commentary
by Rod Gonzalez
Treasury prices had mixed results on Wednesday following a day where investors awaited yet another rate cut from the Federal Reserve. Yields on the short end of the curve dropped as a consequence of the rate cut with the 3 month T-bill dropping 17 bps to yield 0.58%, the 2 and 5 year notes dropped 9 and 1 basis points respectively. It was a different story on the intermediate and long end of the curve as investors, fearing increasing inflationary pressures as a result of the rate cut, moved away from Treasuries. The benchmark 10-year Treasury bond dropped 5/32s to yield 3.86% while the 30-year lost 25/32s to yield 4.24%. For the record, the FOMC ended its 2-day meeting with the 1:15 pm CST announcement that it will lower the overnight lending rate by 50 bps. This action confirmed analysts’ expectations that the Fed will continue to lower rates in an effort to boost the economy. According to the official statement:
“The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”
The Fed governors made it clear that it is their intention to do whatever they can to boost GDP and they have, at least for the time being, placed inflationary concerns on the backburner. Additionally, it could be very difficult to boost consumer spending (a significant component of GDP) with rate cuts as consumer behavior can be heavily influenced by current market volatility and a weakened labor market.
Treasury prices are down today as investors react to the economic data released this morning. The 10-year Treasury is currently down 20/32s to yield 3.93% while the long bond has dropped 16/32s yielding 4.27%. The Commerce Department announced that Gross Domestic Product reported a -0.30% decline for the 3rd Quarter of this year. Analysts had estimated a change of -0.50% for the period. Although this is the first negative GDP reading for the year, it turned out to be better than expected. Personal Consumption, the biggest contributor to GDP, decreased by a dramatic -3.10% for the quarter. Consumption of durable goods contracted a -14.10% for the period. Purchases of non-durable goods also dropped significantly from the previous quarter (-6.40% vs. 3.90%) while service consumption was little changed from the previous quarter (0.60% vs. 0.70%).
Exports increased by 5.90% as 3Q 2008, still benefitting from a weak value of the trade-weighted dollar, while imports decreased -1.90% for the quarter. The change in Inventory levels was a -$38.5 billion for the quarter; the 4th consecutive quarter with a negative reading. Gross private investment contracted a -1.90% last quarter, primarily due to a sharp decline in residential investment (-19.10%). Non-residential investment contracted for the first time this year to -1.00% for the period on weakening demand for investments in structures (7.90% vs. 18.50 in 2Q), and a decrease of -5.50% on equipment and software.
On other economic news, the Department of Labor released its weekly Initial Jobless Claims report this morning showing that claims were unchanged from the previous week at 479,000. However, Continuing Claims were lower than expected at 3.715 million versus the expected 3.735 million. The less volatile 4-week average number of initial claims was 475,500, a 5,000 increase from the previous week.
“The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”
The Fed governors made it clear that it is their intention to do whatever they can to boost GDP and they have, at least for the time being, placed inflationary concerns on the backburner. Additionally, it could be very difficult to boost consumer spending (a significant component of GDP) with rate cuts as consumer behavior can be heavily influenced by current market volatility and a weakened labor market.
Treasury prices are down today as investors react to the economic data released this morning. The 10-year Treasury is currently down 20/32s to yield 3.93% while the long bond has dropped 16/32s yielding 4.27%. The Commerce Department announced that Gross Domestic Product reported a -0.30% decline for the 3rd Quarter of this year. Analysts had estimated a change of -0.50% for the period. Although this is the first negative GDP reading for the year, it turned out to be better than expected. Personal Consumption, the biggest contributor to GDP, decreased by a dramatic -3.10% for the quarter. Consumption of durable goods contracted a -14.10% for the period. Purchases of non-durable goods also dropped significantly from the previous quarter (-6.40% vs. 3.90%) while service consumption was little changed from the previous quarter (0.60% vs. 0.70%).
Exports increased by 5.90% as 3Q 2008, still benefitting from a weak value of the trade-weighted dollar, while imports decreased -1.90% for the quarter. The change in Inventory levels was a -$38.5 billion for the quarter; the 4th consecutive quarter with a negative reading. Gross private investment contracted a -1.90% last quarter, primarily due to a sharp decline in residential investment (-19.10%). Non-residential investment contracted for the first time this year to -1.00% for the period on weakening demand for investments in structures (7.90% vs. 18.50 in 2Q), and a decrease of -5.50% on equipment and software.
On other economic news, the Department of Labor released its weekly Initial Jobless Claims report this morning showing that claims were unchanged from the previous week at 479,000. However, Continuing Claims were lower than expected at 3.715 million versus the expected 3.735 million. The less volatile 4-week average number of initial claims was 475,500, a 5,000 increase from the previous week.
No comments:
Post a Comment