U.S. economy remains on solid footing, especially if you look beyond the last month

Through the lens of last week’s Federal Open Market Committee (FOMC) meeting it became easy to see the negatives in current economic data. Inflation continues to slow in the United States and around the world. Retail sales growth has stagnated, industrial production fell in August, and housing data has softened.

However, the U.S. economy remains on solid footing, especially when widening our gaze from recent monthly data. Softer headline inflation is masking growth in core inflation (excluding food and energy), which is up 1.8% over the past year due to strong home prices. Softer food and energy prices also tend to be a positive for U.S. consumer spending and business incomes. Retail sales are also solid, rising 2.2% over the past year, in line with average annual wage growth.

Housing starts did slow, but permits continue to grow and homebuilder confidence reached its highest point in nearly 10 years. Lastly, a drop in mining activity has driven the primary decline in industrial production, which also includes oil production. Manufacturing production has grown 1.4% over the past year, a positive contribution to economic growth.

We are likely to be nearing the end of the drag on the economy from the downside in activity in mining and oil investment, which should provide some lift to industrial activity in the coming year. Our view is the U.S. economy is, on balance, healthy and has the potential to grow approximately 2% to 3% annually through next year.

The Federal Reserve’s statement noted concern regarding the impact of softer global economic activity on the U.S. economy. A review of international data indicates some pressures remain in place, such as deflation, but others, such as slowing growth in China, may be abating. Inflation in Europe and Japan is slowing, although economic indicators, in general, remain positive. Data from China is beginning to show some stabilization, with inflation ticking higher and retails sales and industrial production for August showing stable growth rates.

Our view is growth, in general, is improving in Europe and Japan, but emerging market economies are likely to struggle into next year, due to weak oil prices and the decline in trade activity in China. Our best case for China is slower growth, but a hard landing or a growth or debt crisis is likely to be avoided.

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

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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