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Jul 30, 201411:20 AMOpen Mic

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Market and economic update: U.S. data continues to indicate economic expansion

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Global growth seems likely to continue despite conflicts in Ukraine and the Middle East. Market flash estimates for July purchasing manager indexes generally remained positive for the United States, eurozone, Japan, and China. Data for the United States and Japan continue to indicate expansion, but not acceleration.

The index for China reached its highest level in 16 months, aided by recent modest stimulus measures. The eurozone index moved to its highest level in three months, although activity in France continues to slide. Further acceleration in Europe is likely to be modest due to financial deleveraging. We expect further improvement in the United States, particularly if business spending improves. Growth in China is likely to see modest improvements as growth stops slowing, but financial conditions may constrain economic acceleration.

Prices in the United States edged higher in June due to rising energy and housing costs, with the Consumer Price Index (CPI) rising 2% over the past year. Inflation in Japan has risen, reflecting the impact of Bank of Japan stimulus. In Europe, inflation rates remain low, although deflation seems to have been avoided. Across emerging markets, inflation remains high in Brazil, Russia, and India, while key Asian exporters have seen low inflation, although recent economic data has risen. The general rise in prices around the world appears to be modest at this time.

U.S. data reported last week seemed consistent with a modest level of growth in the second quarter. Durable goods orders rose in June after a decline in May, indicating an abatement in the surge of economic activity experienced at the end of the first quarter as the economy recovered from the “polar vortex” winter storms. This week we get the first estimate of second-quarter gross domestic product (GDP) growth.

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