Market and economic update: U.S. data continues to indicate economic expansion

Global growth seems likely to continue despite conflicts in Ukraine and the Middle East. Market flash estimates for July purchasing manager indexes generally remained positive for the United States, eurozone, Japan, and China. Data for the United States and Japan continue to indicate expansion, but not acceleration.

The index for China reached its highest level in 16 months, aided by recent modest stimulus measures. The eurozone index moved to its highest level in three months, although activity in France continues to slide. Further acceleration in Europe is likely to be modest due to financial deleveraging. We expect further improvement in the United States, particularly if business spending improves. Growth in China is likely to see modest improvements as growth stops slowing, but financial conditions may constrain economic acceleration.

Prices in the United States edged higher in June due to rising energy and housing costs, with the Consumer Price Index (CPI) rising 2% over the past year. Inflation in Japan has risen, reflecting the impact of Bank of Japan stimulus. In Europe, inflation rates remain low, although deflation seems to have been avoided. Across emerging markets, inflation remains high in Brazil, Russia, and India, while key Asian exporters have seen low inflation, although recent economic data has risen. The general rise in prices around the world appears to be modest at this time.

U.S. data reported last week seemed consistent with a modest level of growth in the second quarter. Durable goods orders rose in June after a decline in May, indicating an abatement in the surge of economic activity experienced at the end of the first quarter as the economy recovered from the “polar vortex” winter storms. This week we get the first estimate of second-quarter gross domestic product (GDP) growth.

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Current consensus estimates are projecting a modest expansion of 2.9%, according to research by FactSet. Jobs data has been consistently positive, and the most recent initial unemployment claims report confirmed this strength, falling to the lowest level in more than eight years. The upcoming July jobs report is likely to indicate further expansion in payroll employment, although the unemployment rate may see only slow improvement over the coming months. According to FactSet, consensus estimates for the employment report suggest the unemployment rate will remain unchanged at 6.1% and nonfarm payrolls are likely to add 225,000 new jobs.

For more information, go to https://reserve.usbank.com/insights/market-economic-update-07-28-14.

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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