In my last update two weeks ago I commented on the continued weakness in the economic data. The economic surprises were overwhelmingly negative and our market based indicators confirmed that weakness. This week the surprises are not in the economic data but in the indicators. And surprising as well is the source of the outbreak of optimism in the bond market and the yield curve. 

We’re growing at 2% or so and it is apparently going to take something big to move us off that number. Investors thought for a while that the new Trump administration would supply that something big in the form of tax cuts, regulatory reform and healthcare reform. All that has faded as the reality of governing in a deeply divided country bites into expectations for rapid change. 

The Trump agenda was marked to market over the last few months and came up a bit shy. Bond yields fell, the yield curve flattened, gold rose and economically sensitive commodities fell. The dollar also fell as economic growth expectations equalized between the US and the rest of the world. And it appears more and more that the equalization is equal parts worse in the US and better everywhere else. The global economy is not supposed to be a zero sum game but it sure has looked that way in recent years.

The economic data contained some positive information but generally the tone of the data hasn’t changed much. The positive surprises were supplied by housing as both new and existing sales were better than expected. The enthusiasm was dented a bit by a disappointing pending sales index but housing had been softening so I’ll take some good news on the sector.

Personal income was another bright spot, up 0.4% and a tad better than expected. That’s a qualified bright spot though; the gain was not from wages and salaries. And the 3.5% year over year change is historically more the bottom of the range outside recession so it’s a positive but not much of one. It certainly wasn’t enough to do anything about consumption as savings improved more than spending. That isn’t a bad thing in my opinion but it gives Keynesians the shakes. Spending was down in durables and non, only services registering a positive. 

Q1 GDP was revised higher but that’s so far in the past no one cares. Jobless claims continue to track at low levels, albeit somewhat higher ones than a few weeks ago. Some of the regional activity surveys were positive with Chicago leading the way, jumping over 60 for the first time since 2014. Dallas and Richmond were both positive but less than expected while KC was positive and better. That about does it for the positives and none of it looks all that positive for Q2 GDP.

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