The stock market traveled a long way in the first 90 days of 2016, only to end up back where it started. January and early February saw the S&P 500 down 10.5%, but from that point to the end of the first quarter, the market recovered all the way back to even.

Interest rates followed a similar pattern. Rates dropped as the equity market fell, and then moved back higher during the recovery. European stock markets did noticeably worse. The Stoxx Euro 600 was down nearly 8.5% for the first quarter. As for interest rates in Europe … Well, there is just about zero yield, period. In fact, several countries have negative interest rates.

Employment and Spending

Gains in employment are the best news about the U.S. economy. From a peak of 10% in 2009, the unemployment rate is now at 5%. The weekly unemployment claims report tells the same story. Fewer and fewer Americans are filing claims as more find work.

In addition, U.S. consumer confidence is on the upswing. This is particularly important because consumers drive GDP growth in the U.S. There is little wonder as to why confidence has improved: 30-year mortgage rates are at 3.7%; new-car loan rates are 3.2%; jobs are more plentiful and gasoline prices are down significantly.

However, U.S. consumers are being cautious about spending. Consumer spending was soft in the first few months of 2016, running at a 2.70% annualized rate. That is a decent, but unspectacular, growth rate. Consumers have been cautious regarding spending habits since the recession. The last seven years have seen a sustained improvement in debt as a percent of income. U.S. consumers have been paying down mortgages, credit cards and personal loans, while at the same time saving more.

This new, smarter consumer is making personal balance sheet repair a top priority. This is great for our overall long-term economic health, but somewhat of a challenge for our economy, which is built on consumption. Tired of driving around in aging vehicles they couldn’t afford to replace a few years ago, U.S. consumers bought cars and small trucks at a record pace of 18 million last year.

The housing market has improved, but the improvement has been glacial. Sales of both new and existing homes have stalled this year, as have housing starts. Housing should improve throughout the next couple of years, though. The price of an existing home has jumped 41% from the 2011 low. In the meantime, median family income is up, but only by 11%. Today’s more cautious consumer is very price-sensitive.

Overall, the underpinnings of the U.S. economy remain solid: employment remains strong, average hourly earnings are lifting, and confidence is solid. This trend should continue through 2016.

The Manufacturing Sector

The data is not nearly as positive for U.S. manufacturing. There are three major headwinds for manufacturing: the strength of the U.S. dollar, weak foreign markets and the decline of the oil and gas industry.

The strong dollar acts as a restraint on U.S.-based manufacturing. If everything else is held constant, then the appreciation of the currency makes our products more expensive for foreign buyers. In addition, foreign economies are weaker than the U.S., so demand is tepid.

Finally, the drop in energy prices has meant a significant decline in capital spending from oil and gas companies. Fewer rigs and less steel and pipe leads to a slowdown in manufacturing output that supports the energy sector. There is no doubt that lower gasoline prices are a benefit for the overall economy, but clearly an issue for manufacturers that supply the oil fields.

Our gross domestic product (GDP), which is the value of all final goods and services produced, has averaged about 2% growth over the past several years. However, it looks like the first quarter 2016 results will be half that. A major detractor for overall growth is weak foreign economies and their impact on U.S.-based exporters. The strong currency is certainly part of the equation, as are weaker corporate profits. But as long as the consumer remains confident, it is likely that the domestic economy remains healthy.

Foreign Markets

The Euro Zone has struggled to find growth, as has Japan. Both the European Central Bank and the Bank of Japan are adding liquidity, keeping rates remarkably low and ensuring investors that this will continue for the foreseeable future. In some countries, interest rates are actually negative.

On June 23, the U.K. will hold a referendum on whether Britain should remain in the European Union. The EU is both an economic and political partnership involving 28 European countries. It began after World War II as an attempt to foster economic cooperation. The idea was that countries that trade with each other are less likely to shoot at one another. It has evolved to become a “single market” that allows goods and people to move across borders as if they never left their home country. It’s not such a strange concept. Here in the U.S., we put no restriction on moving people, goods and services from state to state.

The European Union has its own currency, the Euro, that has been adopted by 19 EU nations, not including the U.K. and eight other members. There are worries that a British exit from the EU would be a negative for growth, and at press time, the odds are 50/50.

China, which has been the primary source for growth in the world for the last 10 years, has slowed. It is unclear exactly how much they have slowed, because few people actually believe the published GDP reports. Suffice it to say that growth is below their target. The Chinese have a goal to grow their economy at least 6.5% year over year over the next five years. The country wants to boost the service sector so that it accounts for 56% of GDP by 2020 and boost per capita income by 6.5%.

The Chinese government is also trying to cap coal usage and increase the use of nuclear power in an effort to curb pollution, which is a massive problem. China ultimately wants their economy to look more like our consumption-based economy. Over the last few decades, the Chinese have moved from a manufacturing- and export-driven economy to one led by investment. The transition to a consumer-focused economy is now underway. The Chinese have a lot on their plate.

The Fed

The U.S. Federal Reserve has staked out a plan to gradually raise interest rates, but its directors seem willing to do so only after inflation has moved noticeably higher. Federal Reserve Chairwoman Janet Yellen recently said the U.S. Central Bank would “proceed cautiously” in raising rates because the global economy presents heightened risks. The Fed raised rates a modest .25% in December 2015. At the time, market watchers expected the next rate hike would be announced at the next Federal Reserve meeting, in June. That timing is now questionable based on Yellen’s recent comments.

We are experiencing one of the longest and best-performing bull markets in history. Obviously, the equity markets have had an occasional correction. But, at least at this point, it continues to add to the record. Market returns have been modest so far in 2016, so the pace of returns has clearly moderated. Earnings growth has become more difficult. As that has become evident, the market finds it harder to push to new highs. One of the most defining aspects to the investment environment over the last six years is how remarkably low interest rates have been and how persistently they have stayed low. Low rates around the globe are a symptom of a world that struggles to ignite economic growth.

The Federal Reserve and virtually all other central banks are attempting to engineer growth by flooding their economies with liquidity and keeping rates at extremely low levels. The U.S. economy is OK. Foreign economies are weaker. The implications are that the U.S. is still the best place to invest. While rates in the U.S. should move higher, our interest rate markets are also being influenced by low rates and weak growth abroad.