Chandler Bond Market Review

Economic Roundup October 2012

Consumer Prices
In August, overall CPI inflation rose to 1.7% on a year-over-year basis from 1.4% in July, driven by an increase in food and energy prices. The year-over-year Core CPI (CPI less food and energy) declined to 1.9% in August, from 2.1% in July. The core inflation rate is roughly in line with the Fed’s inflation target of 2.0%.

Labor Markets
The September employment report showed that payrolls increased by 114,000, in line with the consensus estimate. The unemployment rate unexpectedly dropped to 7.8% in September from 8.1% in August, even with a slight uptick in the labor force. The household survey, which reports on the unemployment rate, is a smaller sample than the payroll survey and tends to be more volatile, which may suggest a statistical “fluke” and explain part of the unexpected decline. The employment report continues to reflect an overall slow pace of growth in the domestic economy.

Retail Sales
In August, Retail Sales rose 4.7% on a year-over-year basis. On a month-over-month basis, Retail Sales rose 0.9% in August, slightly higher than the consensus forecast. Consumer spending has rebounded from the depths of the recession, but recent activity has moderated. Elevated unemployment levels are likely restraining consumer spending.

Housing Starts
Single-family housing starts rose 5.5% to 535,000 in August, following a 4.5% decline in July. The housing market appears to have stabilized and some data has surprised to the upside this year.

Credit Spreads October 2012

Economic Data October 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and views constitute judgments or relevant information as of the date of writing and such information may become outdated or superseded at any time without notice.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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