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The U.S. economy continued to improve at the now expected slow and steady pace in the first quarter. After final revisions, fourth-quarter GDP rose a very modest 0.4 percent. The unemployment rate fell slightly to 7.6 percent in March. Nonfarm payroll growth averaged 168,000 in the first quarter but monthly data continues to be volatile. This nonfarm payroll growth is roughly in-line with what we have experienced in the past few quarters.
Manufacturing data was mixed as durable goods orders and industrial production were volatile in the first months of the year. The ISM Manufacturing Index dropped sharply and unexpectedly in March, still remaining in expansion territory, but the drop is a potential warning sign. Housing indicators continued to show improvement on most metrics and have been a bright spot for the economy. Consumer confidence has been volatile and ended on a down note in March.
The negative sentiment surrounding the ongoing European financial crisis resurfaced as Cyprus became the latest country to need assistance. Generally speaking, investors continue to believe that the euro will remain in place and Europe will ultimately weather this storm.
Inflation has been modest, allowing global central banks to implement more stimulative policies to support global economic growth. The Federal Reserve stayed the course with its $85 billion per month open-ended quantitative easing (QE) program that began last year. Japan’s new leadership is aggressively battling deflation and the Bank of Japan has implemented a QE program that is similar in size to what the Fed is doing in an economy one third the size. This is massive economic stimulus that will find its way around the world.
For the quarter, the yield on the three-month Treasury bill rose 3 basis points to 0.07 percent, while the yield on the six-month Treasury bill fell 1 basis point to 0.10 percent. Yields on longer-term money market instruments such as one-year agency bonds moved higher by 4 basis points to yield 0.16 percent.
Past performance does not guarantee future results.
The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states.