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March Economic Review: The economy springs forward as vaccinations expand and cases, restrictions continue to fall

March 16, 2021

Economic Review: Growth picks up as COVID cases fall and restrictions diminish (Page 3)

The economy picked up further in February after slowing at the end of last year. New COVID cases and hospitalizations fell sharply and government restrictions on in-person activity were increasingly lifted, resulting in strong job gains and the highest level of the ISM manufacturing survey index in nearly 17 years. Inflation also moved higher, but so far it has been caused mostly by rising energy prices.

Financial Markets Review: Higher prices for many financial assets, but not bonds (Page 4)

The equity market rally continued in February, with cyclical and small-cap firms benefitting the most from the wave of optimism surrounding the reopening of the economy. But bond prices moved the other way as growth and inflation expectations rose – pushing interest rates higher. Commodity prices joined the upward march with oil, copper, and lumber posting double-digit month-over-month gains. Thus far global central banks have viewed surging cost pressures as temporary, with none yet tightening policy.

The Outlook: The young expansion is strong enough to survive higher yields (Page 5)

The climb in long-term interest rates that began last summer gathered steam in February, with the 10-year U.S. Treasury note yield rising by 34 basis points and hitting its highest level in more than a year. The trend has continued into the early part of March. This move has put a dent in the rally in risk assets and has raised some concerns about the downside risk it poses to economic growth.

Go deeper with the full March report linked below.