The overall risk of the economy remains relatively low as most of the more prominent indicators listed show a low level of risk. However, the report has more recently experienced an increase in indicators at a moderate level of risk. Notably, treasury spreads continue to remain historically very narrow, yet GDP and various measures of inflation show little to no indication of risk as they continue to grow at a steady rate.
Comments on this week’s report:
- Treasury yield spreads widened but still remain historically narrow as the 10-year minus 2-year spread sits at 0.19% and the 10-year minus 3-month spread sits at 0.25%.
- GDP shows no signs of slowing down as it grew at an annualized rate of 2.6% in the fourth quarter of 2018, increasing its year-over-year change from 3.00% to 3.08%.
- The year-over-year growth in the core Personal Consumption Expenditures (PCE) price index, a measure of inflation, increased from 1.92% to 1.94% and remains comfortably near the Fed’s 2.00% target.
- The University of Michigan Consumer Sentiment index is indicating a moderate level of risk as it took a steep decline from 98.3 to 91.2. However, it should be noted that this index tends to be volatile but if its sharp downward trend continues, a high level of risk may be warranted.