Economic growth to remain slow but positive

Fears of financial crisis and contagion continue to be juxtaposed in markets, with hope of more stimulus from global central banks. Economic data has been of little help to alleviate or confirm market fears.

In the United States, inflation data continued to disappoint market expectations and the housing market is experiencing some softer activity trends. Outside the United States, flash Purchasing Managers Index estimates for January in Europe and Japan were weaker than December, and growth in China weakened in the fourth quarter. We read the data as indicating an economy that continues to see modest global growth, rather than deterioration. Data is not rolling over and longer-term data trends indicate growth is a little better than we likely saw in the fourth quarter.

This week, we will be watching the Federal Open Market Committee meeting announcement on Wednesday for some indication on the future path of U.S. interest rates now that the Federal Reserve has moved away from its zero interest rate policy. The U.S. gross domestic product report, due for release on Friday, will give us a glimpse of fourth quarter growth, which the Atlanta Fed’s GDPNow model indicates may be just 0.7% annualized.

Our view remains for U.S. and global growth to remain slow but positive. The benefits of energy price declines for consumers and businesses should now be working their way into economic activity, providing lift to economic activity, despite the slowdown in energy investment.

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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.

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