Bank of the West U.S. Outlook Report: Right Down the Pike- Now What?
Like a pitcher that’s on fire, U.S. economic data keeps coming in right across the plate. Just as we tipped readers off too last week, the U.S. economic data has remained resilient despite the nervous Nellies on Wall Street. The August payroll report of +173K jobs with a two tenths decline in the unemployment rate capped a decent week of U.S. economic data. The U.S. stock market has remained volatile, however. The market volatility has investors on edge, but many have not yet lost all hope.
What is the smart money doing you ask? Good question. Readings on institutional investor confidence have slumped with the market, but investors have not yet capitulated.
But if you are in need of some reassurance that we’re not about to head off another economic cliff, here are some reasons why we think it’s too early to call a global recession. Turning first to the U.S., job growth continues at a decent monthly pace, in fact we are still on track for nearly 3.0 million net new jobs this year, and the unemployment rate continues to fall and hit a new expansion low of 5.1 percent last month. But even beyond jobs, the economy appears to be hanging in there quite well. Construction spending and the trade balance for July both exceeded economists’ consensus expectations laying a nice base for respectable third quarter U.S. GDP growth.
Consumers continued to spend aggressively on cars in August as light vehicle sales jumped to 17.7 million, the highest month rate of total sales since July 2005.
Despite a small move lower, service business PMI’s remain very strong, and the ISM non-manufacturing survey surpassed consensus expectations.
The global economy isn’t completely dead in the water either. It’s more like the leaders are switching places, many emerging market economies, most of the BRIC’s are going from leaders to laggards. In fact, we see a couple of interesting trend changes. Economic surprises indexes have turned higher for the G10 countries, but especially in the Eurozone.
Could the worst be over? A general global commodity price index, including oil prices, has turned higher after hitting a bottom on August 24th. If you are looking for a turn higher in the global economy, it is likely you would see it first in global commodity prices.
A calmer market could once again revive FOMC rate hike expectations for September, though as of today, the futures market is putting only a 34% probability of a September move. In our view, the U.S. economic data and outlook remain supportive of a September initial rate hike; however, we are just not convinced the FOMC will be confident enough to actually pull the trigger with the market still casting a no vote.
To find out more, check out this week’s US Outlook Report.
Tags: economy