Chandler Bond Market Review

Economic Roundup August 2012

Consumer Prices
In June, overall CPI inflation held steady at 1.7% on a year-over-year basis. Consumer prices remained soft, reflecting a decline in energy prices. Meanwhile food prices rose 0.2% in June. The year-over-year Core CPI (CPI less food and energy) nudged down to 2.2% in June, from 2.3% in May. The core rate remains slightly higher than the Fed’s inflation target of 2%.

Labor Markets
The July employment report showed that the economy added a better than expected 163,000 jobs. The report reverses four months of disappointing jobs reports and may be more indicative of the underlying trend in the labor markets. The unemployment rate increased slightly to 8.3% from 8.2%, but the change was insignificant and a result of mathematical rounding. The employment report continues to reflect an overall slow pace of growth in the domestic economy.

Retail Sales
In June, retail sales rose 3.8% on a year-over-year basis. On a month-over-month basis, however, retail sales fell 0.5% in June, well below the consensus forecast of +0.2%. Consumer spending has rebounded from the depths of the recession but recent activity has slowed down. Elevated unemployment levels and a recent decline in consumer confidence are likely restraining consumer spending.

Housing Starts
Single-family housing starts rose 4.7% to 539,000 in June compared to 515,000 in May. The housing market remains under pressure, but some data has surprised to the upside this year.

Credit Spreads August 2012Economic Data August 2012

RISKS AND OTHER IMPORTANT CONSIDERATIONS

This report is provided for general information purposes only and should not be construed as specific legal, tax, or financial planning advice. All opinions and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice. This report is not intended to constitute an offer, solicitation, recommendation or advice regarding any securities or investment strategy. This information should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest, credit, and market risk. Interest rate risk: the value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market in general could decline due to economic conditions,especially during periods of rising interest rates.

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