Data points to softening U.S. economy

Recent data for the U.S. economy points to softening, including weaker purchasing manager surveys, flat retail sales, and declining durable goods orders. However, the November employment report hopefully gives the Federal Reserve enough confidence in the health of the U.S. economy to raise interest rates at its Dec. 15–16 Federal Open Market Committee meeting.

The U.S. added 211,000 jobs to nonfarm payrolls in November and prior months’ job gains were revised up by 35,000 jobs. The unemployment rate remained unchanged at 5%, with gains in the household employment survey mitigated by a rise in labor force participation.

While there is a risk that the softer data previously cited could deteriorate more, we believe the economy should continue to provide solid growth into the new year. Job and wage gains, as well as the lagged benefits of energy and food price declines, should help lift consumer activity. The recent slowdown in manufacturing activity has allowed past inventory accumulation to deplete and will more likely normalize in coming quarters.

Outside the United States, growth remains modest. Global purchasing manager indexes indicated solid but moderating growth in Europe and Japan, with continued slowing across many emerging economies. With weaker global inflation and little acceleration in growth, we anticipate that some economies may need to expand their monetary policies, including the European Central Bank and Bank of Japan.

This week, the ECB did extend the duration of its quantitative easing program and cut its deposit rate to negative 0.3%. In 2016, the BoJ is likely to add to its program, as well. Weaker currencies and additional monetary accommodation are likely to continue to support growth in developed markets and perhaps stabilize growth in key emerging economies, such as China.

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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.

This information represents the opinion of U.S. Bank and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. The organizations mentioned in this publication are not affiliates or associated with U.S. Bank in any way.

Past performance is no guarantee of future results. All performance data, while deemed obtained from reliable sources, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for investment.

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