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Credit Insights

Investors Put the Economy Back Under the Microscope

Following a lackluster job report, we expect a significant amount of confusion in the markets over the next few days as investors reassess the strength and direction of economic growth.

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The nonfarm payroll number, released last Friday, was a huge miss compared with expectations. Consensus expectations were for a gain of slightly more than 200,000 in March, but the Bureau of Labor Statistics reported a gain of only 120,000. This was significantly below even the most pessimistic forecast. A flight to the safety of U.S. Treasury bonds was evident during the abbreviated trading session Friday, as interest rates on 10-year Treasury bonds declined 13 basis points to 2.05% and are 17 basis points tighter compared with the prior week. The equity markets were closed Friday, but the S&P 500 futures reportedly dropped 1.1% to 1,375. Earlier in the week, the Morningstar Corporate Bond Index had widened out 2 basis points to +184 by the close of trading Thursday. However, we expect spreads will widen first thing Monday as investors look to reduce risk.

We expect a significant amount of confusion in the markets over the next few days as investors reassess the strength and direction of economic growth. Although the employment report was significantly lower than expectations, it may not necessarily portend a general economic slowdown, as favorable weather conditions earlier in the year may have pulled forward seasonal job growth. Average payroll growth between December and February was a healthy 246,000. Investors may also begin to second-guess many of the other economic indicators that have been released over the past few weeks. Generally, these metrics have indicated slow but steady progress, but they have often been softer than consensus estimates.

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David Sekera does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.