Economic Update - Quarterly

Lawry KnoppLawry Knopp, VP-Funding & Hedging

Welcome to the economic update posted quarterly by Northwest FCS' Lawry Knopp, Vice President-Funding and Hedging.

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  • The 2018 Outlook
    We’ve yet to get the official report on real GDP for the final quarter of 2017, but we’re expecting the Bureau of Economic Analysis to report the economy expanded by 2.5 percent. The economy is near full employment with the official unemployment rate at 4.1 percent, while non-farm payrolls expanded at an average of about 175,000 a month.
  • The Economy Remains Resilient
    U.S. Treasury yields have been trending higher over the past couple weeks on better-than-expected growth in the manufacturing sector, increases in oil prices, more hawkish commentary from the Federal Reserve, increased optimism by equity markets over potential tax policy reforms, and an easing in sabre rattling by North Korea.
  • 2017 Mid-Year Review
    Last week we received the final report on Q1 real Gross Domestic Product, which indicated the economy expanded by 1.4 percent during the opening quarter of 2017. Year over year, the economy expanded at a modest 2.1 percent. Looking deeper into the report, consumer spending grew by 1.1 percent, which accounts for over two-thirds of the economy, compared to a 3.2 percent growth rate for 2015 and an average of 2.3 percent for the past five years.
  • Slow and Steady Despite Elevated Uncertainty
    For the most part, the major U.S. equity indexes have been on the up escalator since February of last year. Some analysts do not believe this type of performance can be sustained, especially on increased policy uncertainty from the Trump administration and elections in Europe.
  • Moderate Economic Growth Ahead Despite Policy Uncertainty
    U.S. Treasury yields are up about 30 to 40 basis points since the U.S. Presidential election on Nov. 8, 2016. The two-year yield, at 1.23 percent, is down from a seven-year high of 1.28 percent on Dec. 15, the day after the Federal Reserve increased monetary policy rates. The 10-year yield is at 2.45 percent, which is down from 2.60 percent on Dec. 15, the highest the 10-year yield has been since September 2014.
  • Where We Are, Where We're Headed, and the Geopolitical Potholes Along the Way
    U.S. Treasury yields are well inside their one-year trading ranges with the two-year yield at 0.76 percent compared to a high of 1.09 percent in late-December 2015 and a low of 0.55 percent in October 2015. The 10-year is yielding 1.60 percent, which is up from a multi-decade low of 1.36 percent set in early-July while the high of 2.34 percent occurred in November last year.
  • No Shortage of Event Risk
    Treasury yields are near the bottom of their one-year trading ranges with the two-year yield at 0.58 percent compared to a high of 1.09 percent in late-December and a low of 0.54 percent about a year ago. The 10-year is yielding 1.47 percent, which is up from a multi-year low set earlier this week at 1.44 percent while the high 2.46 percent occurred in mid-July last year.
  • What Drives Interest Rates?
    The level of interest rates essentially reflects the economic outlook of investors and traders. The primary factors that influence their view include projections for economic growth, which is usually expressed as real gross domestic product, inflation and employment.
  • Oil and Monetary Policy Remain Key to Outlook
    January 4, 2016 – Goodbye and farewell to 2015, a year with a 30 percent drop in the price of oil, continued gains in the dollar and the first tightening in monetary policy by the Federal Reserve in nearly a decade. And now, hello to 2016, which will likely experience continued unrest and turmoil on the geopolitical front, more rate hikes by the Fed, higher interest rates and low oil prices.
  • Market Volatility Intensifies
    Since the end of June, U.S. Treasury yields have declined. The two-year yield is down four basis points to 0.61 percent while the 10-year yield is down 31 basis points to 2.04 percent. Market uncertainty has pushed volatility higher as the Chinese devalued their currency, global equity markets have corrected, Federal Reserve monetary policy remains uncertain and oil prices are near six year lows. Meanwhile, the dollar is the strongest it’s been against the euro since late-2003, the yen since mid-2007 and the Canadian dollar since mid-2004.