Market and economic update: Economic activity outside the U.S. continues to appear sluggish

Market attention remains focused on monetary policy authorities and the likely direction of policy. U.S. economic data have been modestly supportive of a conclusion to Federal Reserve tapering this week, with September consumer prices rising just 0.1% and year-over-year prices (excluding food and energy) rising 1.7%. Falling energy prices remain a drag on inflation, but rising home prices reflect strengthening domestic economic activity. We expect U.S. economic activity to moderate from the 4.6% pace in the second quarter to average 3% over the last half of 2014 and into 2015.

Economic data last week from outside the United States seem to indicate some stabilization in activity, although at a relatively low level. Flash purchasing manager index (PMI) survey estimates for Japan, Germany, and China stabilized at recent low levels of growth, although the survey for France indicated further deterioration in activity. September leading indicators for China improved, while third-quarter year-over-year gross domestic product (GDP) growth slowed by 0.2% to 7.3%. Economic activity outside the United States appears sluggish, with slowing inflation and moderating activity. Risks of recession in Europe seem to be on the rise and the efficacy of monetary policy in Japan seems to be waning. Economic activity in China appears to be slower than the government’s target pace, indicating further stimulus may be required to keep growth on target.

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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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