2016 begins weak but expected to stabilize
Soft global economic data and miscues by policymakers in China signaled lower stock markets around the world. Fears have risen that the global economy may start 2016 weaker than originally forecasted. While some data has been soft, in general the lift from lower commodity prices continued to contribute to easy monetary policies in Europe and Japan, and a strong U.S. labor market should lead to improving economic data.
China dominated headlines last week, first with the Caixin Manufacturing Purchasing Managers Index for December indicating contraction for the 10th month in a row, then with stock market declines and currency devaluation. Much of the market impact is likely attributable to investor fears regarding much slower growth and the lack of clarity in regulatory goals. We believe growth is likely stabilizing in China, and further stimulus via fiscal, monetary, and credit policies could be positive for economic prospects later this year.
The U.S. jobs report for December was very good, adding 292,000 nonfarm payroll jobs in December, and prior reports were revised up by 50,000 jobs. While the unemployment rate was unchanged at 5%, the labor force participation rate rose 0.1%, indicating the jobs market may be heating up. The next key to additional Federal Reserve rate increases is for inflation to turn higher, but that may be a couple months away due to recent new lows in oil prices.
Manufacturing data, however, indicated contraction for the second month in a row, reflecting the need to bring inventories down. The non-manufacturing sector of the economy continues to expand, providing support to the U.S. economy. For now, we believe the non-manufacturing data is indicative of the overall trend in the economy and manufacturing activity should begin to normalize from recent lows.
For more information, please go to: https://reserve.usbank.com/insights/market-economic-update.
Robert L. Haworth, CFA, is a senior investment strategist and Darrell Behnke is the Madison market leader for the Private Client Reserve of U.S. Bank.
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