Download Water expands as it freezes, but the US economy did the opposite in

MAY 12, 2014
Water expands as it freezes, but the U.S. economy did the opposite in the
recent brutal winter. A report last week on the nation’s trade deficit added
more evidence to what most economists already have concluded: that the
economy contracted significantly in the frigid first quarter of 2014. Last
week came more substantiation, with the Department of Commerce
reporting that the U.S. international trade deficit did not narrow in March
nearly as much as was expected. That is in line with a gross domestic
product (GDP) that grew only a few ticks above zero in the first three
months of the year.
Paige Wilhelm
Senior Vice President
Senior Portfolio Manager
Federated Investment Counseling
The general malaise of the early part of the year is fading more and more as
other indicators are pointing to a strong recovery in the second quarter. The
Organization for Economic Cooperation and Development last week
forecast that the U.S. GDP will expand at 3.9 percent during the quarter and
likely will continue a robust pace of recovery all year. The April numbers
for the Institute for Supply Management’s services sector index improved to
55.2, up about 2 points from March. Employment metrics also improved,
with a drop both in people receiving ongoing benefits and in weekly jobless
benefits claims.
But short rates continue to be frozen themselves. The 1- and 3-month
Treasuries both moved up slightly to 0.025%. The 1- and 3-month London
interbank offered rates (Libor) did not budge from 15 and 22 basis points,
respectively.
The Fed’s overnight fixed-rate reverse repo facility remained at 0.05%, and
the overnight Treasury and mortgage-backed repo rates both traded at
0.05%, unchanged from last week.
G40461-19 (5/14)
Views are as of May 12, 2014, and are subject to change based on market conditions and other factors.