Market and economic update: Consumers are saving their energy-cost windfalls

U.S. job growth has been impressive, with nonfarm payrolls adding 295,000 jobs in February and 3.3 million over the past year, the highest 12-month change in 15 years. The unemployment rate dropped to 5.5%, partially due to declining labor force participation, but also due to employment growth in the household survey.

Wage growth remains modest based on average hourly earnings, which have grown just 2% for the past year. Ultimately we believe income growth should improve over the course of the year, based generally on the significant improvement in the unemployment rate. Consumers in the meantime appear to be saving their energy-cost windfalls, as the savings rate in January climbed to 5.5%, its highest level in two years.

We anticipate consumer spending should improve over the course of the year due to stronger employment, rising wage growth, and some lift to real consumer budgets from lower energy prices. Growth in the United States appears to be solid based on the Institute for Supply Management purchasing manager indexes (PMI). Manufacturing has moderated somewhat, perhaps due to the stronger U.S. dollar, but nonmanufacturing activity has picked up some momentum. The U.S. economy, in general, appears on pace to grow at an average of 2.8% over the course of 2015, helped by solid consumer employment growth, little drag from government austerity, and some lift in investment spending.

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February PMI indicated economic activity remains fairly solid around the world. Data from Japan and Europe indicate stable growth, likely supported by significant quantitative easing plans. Across emerging market nations, the average PMI also improved, indicating some stabilization in economic activity. The exception is still Russia, which continues to suffer from weak energy prices, economic sanctions, and a weak currency. While the U.S. economy remains among the healthiest in the world, these data indicate other economies may experience improving economic prospects as well.

For more information, go to https://reserve.usbank.com/insights/market-economic-update-3-09-15.

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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