Over the last two days, Retail Sales, Industrial Production, Housing Starts, and Building Permits were released better than economists’ expectations. This contrasts with the nearly-uniform negative economic data we’ve seen since mid-June (see black arrow in the chart below.) Because of the contrast and because rates have fallen dramatically this month, Treasury yields could back-up somewhat if economic data continues positively. Initial Jobless Claims will be important to see tomorrow since last week’s number had fallen (positive.)

This is short-term. Looking a little further out, because the Unemployment Rate has now risen 0.7% from its low (see chart below) and its effect on consumer spending, I doubt that yields falling since April is another head-fake like we saw in February, May, and December of last year. The Sahm rule is 87% of the way to triggering. Should the Unemployment Rate rise just 0.1% to be 4.2% next month (8/2), this rule will be officially triggered; suggesting a recession has already begun. Whether one has begun or not, the Fed and bond market will be affected by this fact when it happens. The Fed and Financial press is touting that the Unemployment Rate is near historic lows and therefore everything is fine, but 5 of 11 recessions in the chart below started with the Unemployment Rate this low or lower. The Fed outwardly wants more soft inflation reports to cut rates, but the labor market could easily be the reason why they first do.