Market and economic update: U.S. economic data softened in fourth quarter

U.S. economic data has softened from the robust activity levels in the second and third quarters of 2014. Gross domestic product grew just 2.6% in the fourth quarter. Consumer spending and investment activity remained solid, but government spending slowed after providing strong contributions in the middle of 2014.

Net exports also slowed U.S. economic activity, likely due to a stronger U.S. dollar. Looking into the new year, lower energy prices and an improving jobs market are likely lifting consumer spirits. The Conference Board and University of Michigan consumer sentiment indexes reached their highest post-recession levels. This week’s employment report should provide further indication of a healthy labor market, although the pace of decline in the unemployment rate is likely to slow. Rising consumer confidence may provide some lift to labor force participation.

Outside the United States, economic data remains weak but does not seem to be deteriorating. In Europe, deflation remains a risk, but confidence among businesses and consumers is not flagging and the employment market seems to be recovering. Bank of Japan’s quantitative easing program has helped the economy avoid deflation, but the weak yen has hurt consumer spending.

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Across the emerging world, particularly in China, activity remains modest, with a number of economies engaging in monetary stimulus to support activity in the face of moderating inflation. The oil price decline will provide some lift to oil-consuming nations, such as Europe, Japan, and much of emerging Asia, although with a lag. Reactions of consumers to lower prices should begin to benefit economic activity in the second or third quarter.

For more information, go to https://reserve.usbank.com/insights/market-economic-update-2-02-15.

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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