UBS Sees Mixed U.S. Economic Data Ahead Of FOMC Decision

In a new report, UBS economist Maury Harris discusses the outlook for U.S. economic growth. After a bumpy year so far in China and a volatile August for global stock prices, Harris sees mixed signals from the U.S. economy heading into what could be the beginning of a new Federal Reserve tightening cycle.

The Bad News

The ISM survey of manufacturers indicated disappointing growth in the manufacturing sector, but positive growth nonetheless. “The slowing pace of expansion comes on the back of stronger durable goods orders and an overall growing sense of optimism around the sector,” Harris adds.

He explains that some of the weakness in the reported numbers was likely due to a drop in export orders, and some of it may be the result of fear related to the selloff in equity markets.

Related Link: Citi's Economist Reacts To Canada's Q2 GDP

The Good News

The U.S. economy saw strong construction growth in Q2, and Harris believes that growth will likely carry over into Q3. Residential activity was particularly high in July. “The revision to June likely adds another 0.2pp to the already strong Q2 growth estimate,” Harris notes.

Sentiment Falls

Stock market volatility is likely to blame for a recent decline in economic sentiment. Investors are left wondering whether or not the U.S. economy can handle the potential beginning of a FOMC tightening cycle in September. While U.S. economic data is stable compared to the rest of the world, the economy is far from overheated.

While UBS believes that volatility in U.S. stocks is likely here to stay, the firm believes that it is “unlikely” that the bull market has already reached its end.