Fed makes headway in labor market and inflation objectives

While the market has been focused on weaker trends of global economic growth for much of this year, Federal Reserve objectives for a strong labor market and rising inflation seem to be making headway.

Regarding the labor market, jobless claims remain low, wage growth has been improving, and the unemployment rate has fallen to 4.9%. Inflation data is also improving, with consumer prices — excluding food and energy — rising 2.2% for the year ending in January, which is the fastest pace in more than three years. Year-over-year headline inflation has also been improving, despite recent new lows in energy prices.

Also on the positive side of the ledger was an improvement in industrial production, which rose 0.9% in January. Looking over the past year, industrial production has declined 0.7%, although the decline really reflects weakness in mining and energy, with declines in utility output perhaps reflecting the warm winter weather.

Despite the stronger U.S. dollar, which acts as a headwind to U.S. exports, manufacturing output climbed 1.2% last year. The dollar likely remains a headwind in 2016, but the magnitude of declines in mining, oil, and utility output are not likely to be repeated. This implies that while industrial production is unlikely to be a lift to U.S. growth this year, it will also not be the same drag on economic output.

For more information, please go to: https://reserve.usbank.com/pcrcp/pdfs/market-updates/weekly.pdf.

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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