The majority of the economic reports over the last two weeks have been disappointing, less than the consensus expectations. The minor rebound in activity we’ve been tracking since last summer appears to have stalled. Retail sales continue to disappoint and inventory/sales ratios are once again rising – from already elevated levels. Even the positive reports were clouded by negative undertones. So far though our market based indicators have not deteriorated sufficiently to create any urgency when it comes to recession.
The US economy started to rebound some last summer, something we noted through our observation of market based indicators. Interest rates started moving higher, the yield curve steepened and real interest rates rose, all before anyone had an inkling that Donald Trump would be moving into the Oval Office. The election did accelerate those trends but they were really based on an inflection in real economic activity that preceded the election. Many of our market based indicators peaked around the beginning of the year but some continued to show high expectations for the US economy well into the new year. The 10 year Treasury note yield, for instance, peaked in mid-December but didn’t really break down until spring.
As you can see, we have seen a recent rebound in yields, based primarily on optimism about the global economy. There seems to be some expectation that better growth outside the US will also be positive for growth within our own borders. There is probably some truth to that but you’d have a hard time proving it by the high frequency economic data released recently.
This post was published at Wall Street Examiner on July 16, 2017.
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