Market and economic update: Stronger U.S. dollar drove imports in the fourth quarter

U.S. economic data continued its trend of negative surprises led by weaker-than-expected economic growth in the fourth quarter. However, overall data still remain consistent with solid economic growth in the range of 2% to 3%, rather than the robust rates of 4% to 5% experienced in the second and third quarters of 2014.

The linchpin in our expectation for solid U.S. economic growth remains consumer economic data. In the fourth quarter, personal consumption expenditures expanded 4.4%, personal incomes continued their solid growth, and consumer confidence remained at a high level. The stronger U.S. dollar seems to have led to stronger import growth in the fourth quarter, creating a drag on net U.S. economic activity.

Data in the first quarter of 2015 appear to indicate some constraints on business activity due to weather. Consumer financial health appears to remain solid, although instead of expanding spending in light of lower energy prices, consumers appear to be expanding savings in the near term. Stronger home sales data and the threat of rising interest rates may help unlock consumer spending over the next couple of quarters, leading to stronger U.S. economic growth.

Outside the United States, growth in developed economies, such as Europe and Japan, appears to be on more solid footing. Flash Purchasing Manager Index (PMI) survey data are pointing to stronger activity in Europe and an improvement in consumer confidence surveys. For Japan, year-over-year inflation remains above the 2% Bank of Japan target, and consumer activity appears to be improving. Data for emerging economies remain relatively soft in contrast.



Brazil seems to have entered a recession, with year-over-year gross GDP growth in the fourth quarter of 2014 falling 0.2% and the unemployment rate rising 0.6% to 5.9% in February. The flash PMI data for China softened, falling back below the key level of 50. China has engaged in some monetary easing in an effort to stabilize economic growth.

We believe economic growth continues to moderate across emerging markets, although lower energy prices should provide some lift to energy-consuming economies. In developed markets, economic activity will likely remain modest, due to deleveraging across the economy, but supported by quantitative easing.

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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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