Recent data not predictive of 2016
For much of January, global markets worried about softer global economic growth. Last week’s data provided further confirmation that fourth quarter 2015 was relatively weak, especially in the United States.
The United States grew at an annualized rate of just 0.7% for the quarter due to drags from exports and investment spending. Other data were also dour, including a 5% drop in December for durable goods orders and softer inflation data, with the year-over-year increase of prices for core personal consumption expenditures slowing by 0.2% to just 1.2% for the year. We believe the U.S. economy is likely performing better than recent data would indicate.
Inventory destocking is not likely to continue for the economy, government spending is set to increase this year and consumers remain healthy — comprising 68% of U.S. economic activity, as measured by gross domestic product. Consumers are benefiting from solid employment trends, lower prices, and may even see wage gains accelerate this year.
In Europe and Japan, easy monetary policy continues to be an important factor supporting these economies. Deflation continues to remain a risk, which led the Bank of Japan to reduce its benchmark deposit rates to -0.1%. The European Central Bank has extended its quantitative easing program and may do more to further support the economy. Growth has, in general, remained modestly positive across Europe and Japan, especially given this monetary support, in conjunction with lower energy prices. These economies will likely maintain a modest pace of growth throughout this year.
For more information, please go to: https://reserve.usbank.com/pcrcp/pdfs/market-updates/weekly.pdf.
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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