U.S. Economy Continues to Surpass Growth Expectations; European Outlook is Tepid
Despite numerous risks – higher interest rates, tight monetary policy, persistent core inflation — the U.S. economy continues to surpass expectations this year. The narrative is a bit cloudier in Europe. While inflation remains high, the underlying economy appears weaker which will cause the European Central Bank to move more cautiously, per IPC’s July 2023 Economic Outlook report.
According to Shawn DuBravac, IPC’s chief economist, “Manufacturer sentiment remains subdued in both the U.S. and Europe according to Purchasing Managers’ Index surveys in each region. But the U.S. is showing good resiliency and data over the last month should make us a bit more optimistic about the second half.”
Additional data in the July IPC Economic Outlook show:
- U.S. manufacturers appear to be investing in capacity, setting a generally bullish tone for the years ahead.
- The U.S. labor market is also holding up well. Initial claims for state unemployment benefits fell by 7,000 to a seasonally adjusted 221,000 for the week ending July 22. This is the lowest level since February. Job growth eased in June to its slowest pace in 30 months, but the labor market is still tight.
- Consumer sentiment is up sharply in the last two months. Sentiment rose 8.8 percent in June, further strengthening in the second half of the month. The short-run economic outlook surged 28 percent and the long-run outlook rose 11 percent.
- The European economy fell during the first quarter of the year, edging down 0.1 percent in the euro area, but rising 0.1 percent in the EU. The economy is up 1.0 percent in both the Euro area and the EU compared to the first quarter of last year.
- The unemployment rate for the euro area remained at 6.5% in May and the EU unemployment rate moved down one-tenth of a percentage point to 5.9 percent. Unemployment in Europe is at the lowest levels in 30 years.