Market and economic report: Falling oil prices capture markets’ attention

The decline in oil prices has captured the markets’ attention, leaving key economic data in the background. The 40% decline in oil prices will typically lift U.S. economic activity by about 1% over the next couple of years. The benefits will take some time to be reflected in the economic data, likely later in 2015.

In the meantime, recent economic releases are consistent with solid U.S. economic activity. The steady improvement in the jobs market seems to be continuing. Job openings remain near the highest levels post-recession, and weekly initial unemployment claims remain below 300,000. Confidence is also improving. The preliminary December University of Michigan Consumer Sentiment Index rebounded to the highest level since 2007, and the National Federation of Independent Business Optimism Index also reached new post-recession highs.

Consumer health appears solid, and the benefits of stronger confidence can be observed in the growth in retail sales in November, rising 0.7% overall for the month and more than 5% over the past year.

Outside the United States, attention remains focused on policy decisions. The weekend elections in Japan resulted in a landslide victory for Shinzo Abe’s party, solidifying the reformers’ power. Further policy reforms are likely to be undertaken, but it will take some time for the economy to recover from the recent recession caused by the increase in the consumption tax.

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Mario Draghi of the European Central Bank has again promised further easing to support deleveraging and reforms in the eurozone, although data for growth continue to point to economic slowing. Meanwhile, China continues to see slower economic activity because the government hopes to exchange slower activity for rebalancing the economy toward consumption.

The recent interest rate cuts may be considered a sign that recent slowing in activity may be greater than the government wishes to tolerate. Lower oil prices will eventually provide some lift to activity for these major consumers. Commodity producers, in the meantime, will continue to struggle, with Russia likely entering recession in this quarter.

For more information, go to https://reserve.usbank.com/insights/market-economic-update-12-15-14.

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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