Economic Overview ~ 1st Quarter 2010

US Economic data, including manufacturing, retail sales, productivity and durable goods all pointed to signs of recovery in the quarter.    GDP reflected the economic strength, with a fourth quarter reading of 5.6% (revised down from 5.9%).    Signs of a bottoming pattern appeared in the housing market as home prices for 12 of the 20 Case Schiller Index markets saw an increase during the quarter.  A portion of this strength is related to the home buyer tax credit that was extended to April 2010.  Unemployment is down from its peak, having hit 10.1% in October and reading a steady 9.7% for January, February and March.  Consumer spending declined for 10 straight months from December 2008 to September 2009.  Since then, expenditures have been positive for the past 6 months. The Healthcare Reform Bill was approved by the House and Senate, and signed into law by President Obama in late March.  Regardless of where the citizenry stands on the issue, the passage removes an unknown that had been looming over the markets for almost a year.  Inflation was generally flat for the quarter as the winter months ended with comparatively benign energy prices. Commodities fell as Chinese authorities began to enforce measures to slow growth and stave off inflationary pressures. The Fed signaled an intent to keep rates low in the near term, which contributed to investor optimism in the quarter.  Specifically, FOMC language that rates will be “exceptionally low” for “an extended period” increased investor’s risk appetite across both low quality equity and spread sector bonds.

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