Market and economic update: U.S. economic data continues to trend positive

The positive trend in U.S. economic data continued last week. Industrial production grew 0.4% in July and nearly 5% over the past year, the highest year-over-year pace since January 2011, with capacity utilization (the rate of usage for industrial equipment) inching up to 79.2%, the highest level since 2008.

The data seem to confirm the strength in the purchasing manager surveys. Small business optimism improved, with the survey indicating more small businesses are planning to add employees and spend on capital equipment. Finally, jobs data improved, with job openings for June reaching the highest level since February 2001. Weak news came in the form of retail sales for July, which were unchanged, and a decline to a nine-month low in the preliminary University of Michigan survey of consumer sentiment. Despite this weakness, the improving trends in the job market and in the industrial sector indicate U.S. economic growth should remain modestly positive into 2015.

European economic growth was slower than the market expected, showing no growth for the second quarter. German gross domestic product (GDP) fell in the second quarter, while GDP in France remained stagnant. With the two largest eurozone economies stumbling, the periphery was unable to change the trajectory of growth.



Deleveraging remains a major detractor from growth, with major banks reducing their balance sheet size to meet capital ratio targets. With bank stress tests upcoming in October, lending across the system is likely to struggle, constraining potential GDP growth. The European Central Bank (ECB) is likely to continue to engage in just enough monetary accommodation to keep the eurozone economy growing, but just modestly. Deeper sanctions against or by Russia, should the conflict with Ukraine worsen, remain a risk to the European economy.

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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. 

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