Market and economic update: Positive economic data draws attention to Fed’s interest rate plans

Last week provided a significant number of data points regarding the state of the U.S. economy. On the positive side of the ledger:

  • The economy recovered from the first-quarter slump, U.S. real gross domestic product (GDP) grew 4% annualized in the second quarter, and the Institute for Supply Management (ISM) Manufacturing Index reached its highest level since 2011.
  • The jobs market continues to improve. Nonfarm payrolls added 209,000 in July and have grown by more than 200,000 per month for the past year.
  • Wage growth seems to be improving. The second quarter employment cost index rose 2% over the past year and average hourly earnings have also grown 2% over the past year, according to the July jobs report.
  • Consumer confidence seems to be improving. In July, the Conference Board’s Consumer Confidence Index reached a new post-recession high.

The negative side of the ledger was modest, including an inconsequential rise in weekly unemployment claims and a 0.1% rise in the July unemployment rate to 6.2%. In this case, however, the rise was driven by an increase in the labor force participation rate, which is an encouraging positive sign of labor force confidence. The data seem consistent with growth, averaging closer to 3% in the next couple of quarters. With the U.S. economy seeming to be on solid footing, we believe the market’s attention will turn to Federal Reserve plans for interest rates.

Outside the United States, economic data indicated a more modest economic environment, including a slip in inflation, a slowing in year-over-year eurozone inflation to 0.4%, and increased fears of deflation taking hold in Europe. June data from Japan indicated slower activity, with a small increase in the rate of unemployment and sliding retail sales and industrial production. For July, manufacturing purchasing managers surveys for Europe and Japan also indicate some moderation in activity.



Turning to manufacturing surveys in emerging markets, which tend to modestly lead economic activity, there is an indication of growth occurring around much of Asia, while Latin America is struggling. Data from China, Taiwan, India, and Indonesia all improved. Activity in Brazil and Mexico has moderated, coincidently with slipping energy prices. Economic conditions across the emerging world have become more diverse as the year has progressed, with certain regions experiencing improvement and others deterioration. We expect this trend to continue based on regional conditions and the diverse monetary and fiscal conditions across emerging market economies.

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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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