Bank of the West U.S. Outlook Report for August 29, 2014

  • by BPC Staff
  • on September 2, 2014

US Outlook Report: Trouble Abroad

Left to itself, the U.S. economy appears to be on a solid and sustainable path for growth. The overall strength of U.S. economic data continue to impress analysts with positive surprises far outweighing negative ones so far in August.

The Conference Board’s Leading Economic Indicators Index is in the midst of its fastest growth spurt since 2010 when the U.S. economy was just emerging from recession.

Yet doubts remain. One ominous indication that all is not so well comes from the fixed income markets. The ten-year Treasury yield sank to 15 month lows recently. U.S. inflation expectations have slumped as West Texas Intermediate oil prices dropped 8.0 percent over the past month and 2.0 percent over the last five days, helping to push long-term interest rates in the U.S. even lower.

However, recent economic data suggest there is a deeper problem with the global outlook. Global economic data almost everywhere, except in the United States, is turning ugly. Economic surprise indexes for the Eurozone, Japan, and Emerging Markets are slipping, indicating weaker than expected economic performance.

The interest rate declines from abroad have been even more dramatic than those in the United States, suggesting a whiff of deflation and real global growth concern is in the air.

So while the baseline U.S. outlook is sanguine, my biggest concern today centers around a weak global economy that begins to tarnish our economic fundamentals. Downside growth risks from trouble abroad give the doves on the FOMC another reason to hold off on raising short-term interest rates beyond residual labor market slack in the United States.

To find out more about the troubles abroad and how it could hurt us down the road, check out this week’s US Outlook Report for August 29, 2014.