Labor market improvements temper negative economic sentiments

Negative sentiment continued to plague markets since most economic data proved disappointing. The U.S. employment report was generally cheered by markets but payroll growth did slow in January.

The U.S. unemployment rate fell 0.1% to 4.9% in January and, in a positive sign, more people are seeking jobs, with the labor force participation rate now improving for the past four months. The U.S. jobs market improvement was a primary support for the Federal Reserve interest rate lift-off. The pace of improvement in the jobs data is likely to be more modest this year, but normalization in inflation should help support positive economic sentiment and likely future Fed rate increases.

Purchasing manager indexes for January were disappointing, with manufacturing contracting in the United States and China, and growth slowing in U.S. services and across Europe and Japan. We view recent data as indicative of a slow patch, rather than an indication of imminent recession. Monetary support continues to expand, especially outside the United States, and little price pressures are key indicators that the global economy should continue to expand.

Recent fears of a collapse in economic activity in China and a demand vacuum, as evidenced by lower oil prices, may be overdone. Demand for oil continues to grow, with recent price weakness reflecting strong supply growth. In China, the economy has been slowing for some time and recent currency declines and economic stimulus should prove sufficient to support the economy.

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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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