Market and economic update: U.S. jobs market continues to improve

The U.S. jobs market continues to improve, adding 288,000 nonfarm payroll jobs in the month of June. In addition, revisions to April and May data added another 29,000 jobs. In June, the unemployment rate slipped 0.2% to 6.1%. The U.S. economy has now surpassed its previous peak of total payroll employment reached in January 2008.

Normalization continues with long-term unemployment, defined as those unemployed for more than 27 weeks, declining as a proportion of total unemployed to 32% from its high of 45.6% in 2010. The average proportion of long-term unemployed averaged just 17% for the 10 years prior to the financial crisis. Average hourly earnings grew 0.2% last month, but longer-term averages indicate earnings growth remains modest. The key for an improvement in the U.S. economic expansion remains in capital spending trends, which have seemed modest at this point. The coming weeks will bring the second quarter earnings season, which should offer some indication of corporate spending plans.

Global Purchasing Managers Index (PMI) data last week showed manufacturing activity is supporting global economic growth. Data indicate global economic activity seems to be led by the United States and United Kingdom, with recovery continuing in Europe. Data for Asia started to improve in June, with Japan recovering from weakness due to a consumption tax increase and activity in China and India starting to perk up from its malaise.

These data are consistent with our view of a recovering global economy. Easy monetary policies in the United States and United Kingdom continue to support strong PMI data, while strong monetary policy in Japan is helping their PMI recovery from higher taxes. The eurozone activity continues to stumble along, with the deleveraging in the core economies of France and Germany slowing their growth while peripheral economies, such as Ireland and Spain, see improving manufacturing activity. Emerging market economies generally saw improving PMI data in June, with the HSBC China Index reaching expansion for the first time in 2014.



Conflict has risen as a risk to global economic growth. The Russia-Ukraine conflict has eased and strikes in Libya are ending. However, the turmoil in Iraq has risen and little progress has been made in nuclear negotiations with Iran as the July 20 deadline looms. The jihadist group Islamic State of Iraq and Syria has declared a caliphate, an Islamic state led by a religious leader, spanning its areas of military control across parts of Syria and Iraq. Conflict has yet to threaten the key oil fields to the south, but the group continues to push toward Baghdad.

The United States seems unlikely to consider direct intervention in the conflict, either through air strikes or ground troops, but has committed a limited number of advisors to help the Iraqi government. We believe the likely outcome of the conflict is for Iraq to remain intact and Prime Minister al-Maliki to be replaced with a more centrist leader, reflecting the diverse religious makeup of Iraq.

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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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