Download the PDF: Alerus Monthly Insights: May

Overall assessment:  Last month, both the U.S. financial markets and the overall economy continued to make incremental improvements. In addition, the U.S. saw its strength improve relative to rival economies such as Europe, England, China and Japan. Despite these improvements, there is a brewing conflict between the monetary and fiscal sides of U.S. economic policy. While we see housing improving, there are still serious issues such as deficits and labor markets that need resolution.

ANALYSIS  Bond rates/yields are very important economic indicators. For example, as yields increased in euro-area countries such as Spain and Italy, there were concerns about the inability of those countries to finance deficits or rollover debts that were due to mature. Similar concerns exist about the U.S. and borrowing, though the 10-year note yield shows borrowing costs for the government remain quite low. The low interest rate environment encouraged by the Federal Reserve lowered the yields on Moody’s AAA and BAA rated bonds as well. The very low yields are why companies refinanced much of their outstanding debt, or issued new debt, such as Apple’s $17 billion issue on April 30th. Like many individuals, businesses took advantage of the post-crisis low rate environment to refinance their debt at lower rates and free up funds for investment or other purposes. What is needed now is a growth environment that encourages businesses, and individuals, to put those funds to work.

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Data and the related opinions have been compiled by Alerus Financial’s strategic information partner, Dr. David T. Flynn. Dr. David T. Flynn is an Associate Professor of Economics and Director of the Bureau of Business & Economic Research at the College of Business & Public Administration, University of North Dakota. Dr. Flynn has developed forecast models for personal income and employment in North Dakota, and analyzed small business location patterns for the top 200 cities in North Dakota. His commentary on the North Dakota economy has appeared in print and online publications such as BusinessWeek, NewsWeek, American Banker, the Financial Times, the Wall Street Journal, and in newspaper and magazines from the United States, Brazil and Finland. Dr. Flynn is a member of the International Institute of Forecasters, the National Association for Business Economics, and many other professional organizations.