Second Quarter GDP: dreadful, horrible, terrible, etc.
Weekly bond commentary
Is this part of the fits and starts, or rolling over?
The widely expected awful second quarter gross domestic product (GDP) read released this week was, indeed, truly awful. It declined 32.9% at an annualized pace, after falling 5% in the first quarter. Consumer spending, down $1.3 trillion, was the key driver, ironically led by a $472 billion drop in health-care spending. Business investment in equipment and structures also plunged, as did inventories of goods, as businesses were not able to replenish their stocks sufficiently. Federal government spending mitigated the drop, and offset contraction in state and local government spending. The personal saving rate was 25.7%, compared with 9.5% in the first quarter—certainly not the actions of a confident public. All told, the second quarter was tough.
Making matters worse was the increase in weekly jobless claims. For the second straight week, they registered more than 1.4 million, driving up the continuing claims figure to more than 17 million, implying at least a 10% unemployment rate. With extended unemployment payments due to expire without Congressional action, it is no wonder consumer confidence softened in July. Coronavirus cases continue to mount nationwide, and though there is an aggressive push for a vaccine, it seems unlikely to come in the near term.
Through all this, financial markets have been treading water, taking stock and consolidating gains, while waiting for a signal as to which direction to head next.
Treasury yields fell this week from last, with the 2-year yield slipping 4 basis points to 0.11%, the 3-year yield decreasing 5 basis points to 0.12% and the 5-year yield dropping 7 basis points to 0.21%.