Market and economic update: Global growth centers on strong U.S. economic activity
Growth in Europe remains weak, data for China slowed, and Japan suffered a second quarter of contraction, but U.S. economic data remains supportive of economic growth.
- European gross domestic product (GDP) grew 0.2% in the third quarter, indicating the economy is not yet spiraling into recession but growth is anemic at best. We believe odds favor declining activity sometime in 2015.
- Data for China has slowed, with October year-over-year data for industrial output, retail sales, fixed investments, money supply growth, and loan growth all lower when compared to September. It seems China may struggle to reach its 7.5% 2014 target for GDP growth, with 7% more likely, and growth may be slowing further in 2015.
- GDP for Japan contracted 1.6% annualized in the third quarter, following a 7.3% contraction in the second quarter. Despite significant monetary accommodation, the economy continues to suffer the effects of an increase in the consumption tax. Slowing economic activity likely means the government will delay a further increase in the consumption tax and may seek new elections to determine the appropriate policy response. Economic growth likely recovers, but at a very low level without further policy adjustments.
- The U.S. jobs market recovery continues with the Job Openings and Labor Turnover Survey (JOLTS) report indicating the rate of quits and hiring in the economy have recovered to pre-recession levels, one of the key indicators for the Federal Reserve to begin to normalize interest rates. Confidence remains strong and retail activity has been supportive of the potential for solid growth in the fourth quarter.
Global growth remains centered on stronger U.S. economic activity and struggles across much of the rest of the world. This differentiation is supporting different monetary policies and strength in the U.S. dollar.
For more information, go to https://reserve.usbank.com/insights/market-economic-update-11-17-14.
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