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The Times They Are A-Changin'

Learning Opportunities

What would Henry Ford think? This past week, Ford, the venerable 115-year-old auto manufacturer that revolutionized manufacturing, wages, production management and, arguably, America, announced that it will, for the most part, abandon the manufacturing of sedans! The maker of such cars as the iconic Thunderbird and the ageless Mustang will limit sedans to approximately 10 percent of its vehicle line and direct energies toward pick-ups, SUVs and commercial vehicles – more lucrative models that will help secure Ford’s future in the 21st century. This author cannot help wonder if this is a short-sighted move and if the subtle contrarian warning signs are flashing. Will oil and gas prices move higher in the near future? The one thing inherent to the future is incomplete information. Hindsight may suggest that this segment may have been more aptly titled: The more things change, the more they stay the same.

Other Key Indicators this Week:

GDP – U.S. GDP growth moderated in the first quarter, but at least part of the slowdown is statistical, coming from residual seasonality in the data. Real GDP grew 2.3 percent, better than expected, but below the 2.9 percent in the fourth quarter. This was the weakest growth in a year, according to the advance estimate from the Bureau of Economic Analysis. Growth, though modest, was widespread, including investment, consumer spending, trade and government. Imports and durable goods spending were drags. Real disposable income growth accelerated to 3.4 percent on the back of tax cuts, after rising 1.1 percent in the fourth quarter. The saving rate jumped to 3.1 percent, from 2.6 percent in the fourth quarter.

Bankruptcy Filings – Personal bankruptcy filings increased in the first quarter following normal seasonal patterns and supported by increased credit usage. Filings rose less than last year and are 4.7 percent lower year-over-year; the biggest year-over-year decline in five quarters. This indicates that consumer finances are strong, a reflection of strength in household balance sheets. On a household basis, levels have not been this strong since the late 1980s. Going forward, higher interest rates and continued borrowing may eventually put pressure on filings.

Strategically for Credit Unions:

The 10-year T-note hit 3.02 percent, its highest level since 12/31/2013. The 30-year T-note hit 3.20 percent, a level  hit twice before in the last year. Both bonds rallied after hitting those levels. The yield curve continues to flatten. That is a symptom – not a disease – of tighter monetary policy. The Fed/FOMC has increased rates from a target of 0-0.25 percent, last seen 12/11/2015, to the current target of 1.75 percent. If the Fed tightens too much, recession is a concern, and the market will probably send a warning with an inverted yield curve, meaning short-term rates will be higher than long-term rates. If that occurs, a recession is not a certainty, the markets just perceive – a better word may be speculate – that the economy could slow. If the yield curve inverts, the best strategy is to go against your inclination to buy the higher short-term rate. Spread cash around and extend some maturities to capture yield that WILL stay on the balance sheet a little longer.

Allen Schiliro – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.