Don’t count out the U.S economy just yet.
While it’s true that economic performance in the U.S. broadly disappointed in the first quarter — with the exception of jobs data — temporary factors such as colder than seasonally anticipated weather, as well as the West Coast ports shutdown and the collapse in oil-related investments presented one-off events that temporarily depressed output in the quarter.
But this pattern of weak first-quarter data has been the case for most of the past five years, as shown below. Average gross domestic product (GDP) has come in at just 0.6% in the first quarter from 2010 to 2014, substantially lower than in other quarters. (2015 first-quarter GDP will be unveiled on April 29.)
So, lower bond yields in March and April have come in an environment of steadily disappointing economic data. And, in that environment, the Federal Reserve’s more dovish communication furthered expectations for a more benign interest rate environment.
However, investors should be careful not to read too much into these latest developments.
Despite seasonal adjustments, the U.S. economy has still exhibited surprisingly strong seasonality since the financial crisis. The chart plots the Citi U.S. Economic Surprise Index — an index that reacts positively when economic data surprise above economist forecasts and negatively when data surprise below.