We learned a lot about the US economy last week, but what we learned might ask us more questions. Consider some of the numbers that are most interesting:
Encouraging news
◾ GDP grew by 3%: After a -0.5% decline in the first quarter, the economy rebounded in the second quarter. The first quarter decline was driven by businesses rushing to import goods ahead of new tariffs from President Donald Trump. Imports are deducted from US growth.
◾ Consumers are happy: Both consumer trust and sentiment continued to rise in July, recovering from its April low. Consumer spending is the biggest part of the US economy.
Very encouraging news
◾ Inflation is rising: The Fed’s Priority Inflation Gauge – Personal Consumption Expense (PCE) Index – has increased by 0.3% since May. Economists say the increase could be one of the early signs that tariffs are beginning to push prices up.
◾ Job’s revision surprise: Job profits in July were 73,000, well below the expected 102,000. But more is the downward revisions of numbers in April and May, suggesting that the labour market may be weaker than previously thought.
One thing that remains the same this week is the Federal Reserve’s attitude towards interest rates. Chair Jerome Powell and the Policymaking Committee stabilized the short-term rate range from 4.25% to 4.5%. However, that range may not last long.
“We’re looking forward to seeing you in the future,” said Bill Adams, Chief Economist at Comerica Bank. “The decision is not a slam dunk as the labor supply also fell in July,” as the number of foreign-born workers fell.
Interest rate traders seem to be convinced that interest rate cuts are coming. Their latest bet suggests a 90% chance for the Fed to lower interest rates in September.
Will the Fed cut interest rates?
Can’t view the graphics? Click here to view them.
How’s the US economy?
What is the unemployment rate in the United States?
In July, the US unemployment rate rose to 4.2%. The monthly number represents the percentage of people who are unemployed and looking for a job.
What the data shows: Over the past year, unemployment has been relatively stable, hovering a median monthly of 4.1% over the past decade. Economists such as Oxford Economics’ Nancy Vandenheuten speculate that corporate decision makers are being hampered by the uncertainty surrounding tariffs.
Employment remained stable throughout the year, but well below the 10-year median of 226,000 jobs per month. Analysts expect Friday’s employment report to show that the economy added around 100,002 jobs in July. Following the unfortunate report, stock prices and bond yields fell.
How big is the US economy?
The US economy produced roughly $30 trillion in the first quarter on an inflation-adjusted annual basis, but real GDP, the value of goods adjusted for inflation, fell 0.5% in the quarter as imports subtracted from GDP jumped more than 50%.
What the data shows: On Wednesday morning, a report from the Bureau of Labor Statistics showed that the economy had risen 3% in the second quarter. Much of “growth” comes from a decline in spending on imports.
How high is inflation?
Inflation, a sustained rise in prices across the economy, reached a median of 2.3% in April for 10 years. This is the first time since pandemic spending began to launch 40 years of high inflation. Fed policymakers say they can “make sound decisions regarding savings, borrowing and investments” because they prefer 2% or “low and stable” inflation.
What the data shows: Inflation has dropped significantly, but remains above the 2% covered by the Fed. The annual inflation rate, measured by the consumer price index, rose from 2.4% in May to 2.7% in June. The July CPI report will be released on August 12th.
Are consumers still buying?
US consumers make up $7 for every $10 spent on the US economy. The median monthly increase in retail sales has been around 0.4% over the past decade. That’s not much until you think that the 0.6% increase in June would amount to an additional $4.6 billion expenditure.
What the data shows: It purchased $720 billion worth of the US economy in June on a seasonally adjusted basis. This was a big swing from a -0.9% decline in May. We will check on August 15th to see if they continued their days in July.
Gas prices are stable
Buying gasoline is not the majority of the budget, but it is difficult to overlook the big numbers outside every station, and there is no emotional response to their fluctuations. It can have a psychological impact on our spending. One report showed that recent improvements in consumer sentiment are closely correlated with lower gas prices.
What the data shows: We are in the middle of the summer driving season when gasoline prices are usually peaking, but we have a stable normal gas of just under a few cents below last year’s prices.
So, how confident are US consumers now?
The University of Michigan measures US consumer sentiment each month. The index went 101 ahead of the February 2020 pandemic, lowering as 50 when inflation peaked at 9.1% in June 2022.
What the data shows: Since it fell from the bottom in May, consumer sentiment has ceased.
The current mortgage rate is still rising
The Fed’s interest rate determination does not directly affect mortgage rates, but it spread through the economy, making mathematics even more difficult for home buyers.
What the data shows: According to the Freddie Mac’s weekly mortgage rate survey, since November, mortgage rates have moved into a relatively narrow range (6.6% to 7%), well above the 10-year median. Prices have fallen significantly from the November 2023 peak of 7.8%.
The higher the mortgage rate, the heavier the home sales.
Existing home sales are the majority of homes sold each month. NAR reports monthly sales at a seasonally adjusted annual rate. Annual home sales peaked in 2005 at 708 million units. In September 2024, that number fell to 3.9 million units. It was lower than annual sales after the financial crisis.
What the data shows: Not surprisingly, existing home sales have been reduced as mortgage interest rates rose. At the same time, the average home prices are also rising due to fewer homes on the market. The speculation is that homeowners don’t want to sell low-cost mortgages and give up.
So, how do investors see this information?
The country’s stock market is not an economy, but their movements reflect the combination bets investors are making in the economy. Investors have a keen eye for data points like the chart above. A significant change in our spending, or even thought, could potentially affect the company’s profits in the coming quarter.
What the data shows: After reducing DIP in early April due to tariff-related uncertainty, the S&P 500 has steadily risen, reaching several new highs since June. The upward trend may suggest that investors are increasingly confident that the ultimate tariff contract will not weigh down the economy as they once feared, but following Friday’s employment report, all three major US indices fell by more than 1%. The technology-rich Nasdaq composites fell by 2.2%.
Contribution: Bailey Schultz
