8/30/24: Strong GDP Growth, Stable Inflation, and Fed Rate Cut Anticipation

The economic releases this week presented several key data points which will likely influence near-term decisions regarding Monetary Policy.

The GDP growth rate for Q2 was revised slightly upward to 3.0%, indicating a stronger economic performance than anticipated. The upward revisions were attributed mainly to consumer spending, but were partly offset by downward adjustments to net exports, federal government spending, and state and local government spending. Gasoline and energy were also revised slightly higher.

There were no major surprises in the July inflation data that reported today. The Personal Consumption Expenditures (PCE) Price Index remained stable year-over-year at 2.5% and 0.2% month-over-month, both figures were in-line with consensus expectations. The Fed’s preferred gauge for inflation, Core PCE, slightly undershot expectations, growing by 2.6% year-over-year versus consensus estimates of 2.7%. Below expectation inflation data should all but solidify the Federal Open Market Committee’s intention to announce reducing the Fed Funds rate at the next FOMC meeting.

Housing prices continue to stay firmly in positive territory. The S&P Case-Shiller 20-City Composite Index showed gains again in June, increasing on an annualized basis by 6.47%. Continuing with the resilient consumer narrative, personal income and spending for July met or exceeded expectations, with income growing by 0.3% and spending by 0.5%. Consumer sentiment, measured by the University of Michigan, was slightly below expectations at 67.9 for August, while inflation expectations for the next 1 and 5-10 years remained stable at 2.8% and 3.0%, respectively.

July saw a significant rise in durable goods orders, which surged by 9.9%, far exceeding the expected 5.0%, despite a previous decline of 6.9%. Manufacturing activity picked up slightly as the Dallas Fed Manufacturing Activity survey for August improved, though it remained negative at -9.7, better than the forecasted -16.

US Treasury yields continue to remain significantly lower with the 2-year yield around 3.91%, the 3-to-7-year area in the 3.70s. As of this writing the 2-year-10-year inversion remains on the cusp of un-inverting with the 10-year US treasury at 3.90%.

Next Week:

S&P Global US Manufacturing, ISM Manufacturing, ISM Services, JOLTS Job Openings, Federal Reserve Releases Beige Book, Challenger Job Cuts, ADP Employment Change, Nonfarm Payrolls, Unemployment Rate, Average Hourly Earnings, Labor Force Participation Rate

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The S&P Corelogic Case-Shiller home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the nation.