Market and economic update: Q3 data appears to fall short of Q2

U.S. economic data points toward modest growth, in line with U.S. Federal Reserve expectations and indicating the Fed is likely to increase interest rates in the first half of 2015. As the third quarter draws to a close, the data seems to indicate the quarter will not be as robust as the second quarter, which grew at a 4.6% quarter-over-quarter annualized rate. However, data remain consistent with growth near a 3% rate, due to strength in employment and capital spending.

The July surge in aircraft orders was followed by a surfeit of orders in August, with headline durable goods orders falling 18%. Excluding the volatile transportation sector, durable goods orders rose 0.7% in August and have grown at the fastest year-over-year pace since the beginning of 2012. Employment market gains are likely to continue in this week’s September employment report. Weekly initial unemployment claims have averaged 300,000 or fewer for the past couple of months, indicating healing continues in the labor market.

Growth in the developed world outside the United States likely remains anemic based upon the flash purchasing managers index (PMI) data from Markit. The September estimates for the eurozone and Japan both ticked lower, falling to 52.3 and 51.7, respectively. In China, manufacturing growth remains relatively weak, with the HSBC/Markit Flash Manufacturing PMI Index rising 0.3 points to 50.5.



The case for growth outside the United States remains less compelling at this time. Emerging-market economies are experiencing diverse growth trends, with the decline in commodity prices hurting commodity-producing countries relative to commodity-consuming countries. Weaker inflation is allowing some stimulus for emerging-market economies, with some success, such as improving growth in India. In the developed world, both the eurozone and Japan are seeking to use monetary policy to support economic growth while reforms are negotiated and hopefully enacted. We expect growth in Europe and Japan to continue to struggle into 2015.

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