Economic Update: Economic fundamentals remain positive despite soft first quarter

U.S. economic data indicated the first quarter was soft, and although fundamentals for the economy remain positive, April data did not foreshadow a strong rebound in the economy.

U.S. Gross Domestic Product (GDP) grew just 0.2% in the first quarter. A couple of one-time factors — weather and the West Coast ports strike — slowed activity. The stronger U.S. dollar likely also reduced U.S. exports.

Investment spending fell, likely due to declines in oil and natural gas capital spending, which was driven by lower prices. Prices for oil have rebounded from the lows but inventories remain high, which may mean capital spending in the energy industry will remain a drag on the economy into the second quarter.

The positive factor in the report remained the solid consumer spending data. Low weekly jobless claims and solid, though not improving, consumer confidence data indicate the jobs market should return to its path of improvement. This may provide support for some return to trend growth in the second quarter.

We continue to expect the U.S. economy to grow at an average of 2.5% to 3% for 2015. The April employment report should provide an initial indication of normalization, with nonfarm payrolls growth expected to rebound back above 200,000 new jobs.



Economic data from Japan last week indicated economic activity remained soft. Personal income and consumer spending declined, and inflation in Tokyo for April weakened. Further economic reforms and continued quantitative easing are likely required to stabilize the economy.

In Europe, inflation estimates for April improved slightly, indicating there may be some lift from the start of quantitative easing. The monetary stimulus has yet to provide much lift to consumer or business confidence, nor to employment.

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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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