The U.S. economic data last week was stronger than expected, and the risk markets continued to perform well. In my last blog post I mentioned that the ISM data and employment number were the two key pieces of economic data to watch, and both numbers came in stronger than anticipated. The February ISM number was 53.6, comfortably above the level of 50 that signifies expansion. The ISM non-manufacturing was 53.4.
The change in February payrolls was 242,000 versus an expected 190,000, and prior revisions added another 30,000. The unemployment rate remained unchanged at 4.9% as more people re-entered the workforce. Overall, I thought the data last week was strong and supports 2.5% to 3.0% Gross Domestic Product (GDP). The two primary areas of weakness in last week's data were that wages fell and productivity slowed.
I have been asked many times if the Fed will tighten in March, and I continue to believe that they will not. With inflation low and lingering global uncertainty, I believe the Fed will be on hold until at least June. It will take continued employment gains and economic expansion to get the Fed to raise rates in June.
I continue to like being short U.S. Treasuries and keeping a curve steepening bias in this environment.
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