Short Description: U.S. Q2 GDP accelerated to 2.8%, even as June inflation cooled closer to the Fed’s 2% target, painting a picture of resilient economic growth.
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Main Article
New economic data last week revealed a U.S. economy demonstrating remarkable resilience. The advance estimate for Q2 Gross Domestic Product (GDP) showed the economy grew at a 2.8% annualized rate. This figure significantly outpaced forecasts and doubled the pace of the first quarter, largely driven by robust consumer spending and business investment. Concurrently, the latest Personal Consumption Expenditures (PCE) Price Index—the Federal Reserve’s preferred inflation gauge—showed price pressures cooled further in June, climbing 2.5% year-over-year, the slowest pace since February. This combination of strong growth and moderating inflation continues to fuel optimism that the Fed can orchestrate an economic soft landing.
Analyzing the components of economic growth, personal consumption remained the primary engine for the fourth consecutive quarter. This aligns with a healthy labor market that continues to support household spending. Business investment also contributed substantially, particularly in structures and equipment. However, the GDP data wasn’t without a headwind; net exports subtracted from overall growth as imports rose. Meanwhile, the core PCE price index, which excludes volatile food and energy prices, rose 2.6% annually, holding at its lowest level since March 2021. This progress on inflation provides the Federal Reserve with more flexibility as it considers future interest rate moves.
Focus now shifts squarely to the labor market, a critical input for both consumer confidence and Fed policy. This week will see key job reports, including June’s JOLTS data and the July employment figures. Markets will watch to see if job openings continue their gradual descent and if hiring momentum aligns with expectations of around 185,000 new nonfarm payrolls. These reports are vital economic indicators that will shape market expectations for the timing of potential interest rate cuts this year. Investors will scrutinize whether job growth is slowing enough to further ease inflation pressures without tipping the economy into a downturn.
Short Summary
The U.S. economy showed strength with Q2 GDP growth accelerating to 2.8%, even as the Fed’s preferred inflation gauge, the PCE Price Index, cooled to 2.5%. This data supports the soft-landing narrative, placing a key focus on this week’s upcoming job reports. The health of the labor market will be crucial in determining the Federal Reserve’s next policy steps.
