Recent data reveal that consumer spending and income in the U.S. experienced moderate growth. According to the latest analysis from the U.S. Bureau of Economic Analysis for July, inflation remains subdued, with the personal consumption expenditures index rising by just 0.3% compared to a year ago. Overall, these figures reinforce the perspective that a steady, albeit slow, expansion of the U.S. economy continued through last month.
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Treasury yields maintained their modest recovery through Thursday’s close as we approach the Federal Reserve’s annual conference in Jackson Hole, Wyoming. Discussions are expected to focus on the possibility of raising interest rates during the central bank’s policy meeting on September 16-17. Earlier this week, New York Fed President Bill Dudley dampened expectations for an imminent rate hike, stating that the rationale for such action appeared “less compelling” than it did two weeks prior. His cautious stance is largely influenced by recent market volatility. However, despite the recent fluctuations, the encouraging economic data from the U.S. suggests that the overall trend for the world’s largest economy remains resilient.
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● U.S. GDP growth was revised significantly upward to 3.7% for Q2
● U.S. jobless claims decreased by 6,000, approaching multi-decade lows
● U.S. pending home sales increased in July—up 7.4% compared to the previous year
● The U.S. consumer comfort index rose to a five-week high
● Eurozone economic sentiment improved in August
This morning’s economic updates support a cautiously optimistic outlook for the U.S. economy. The revised second-quarter GDP data indicates that growth during the April-to-June period was significantly stronger: 3.7% compared to an initial estimate of 2.3% (seasonally adjusted annual rate). Additionally, the weekly report on initial jobless claims reveals that this key labor market indicator remains near multi-decade lows. Essentially, these figures show that the risk of a business cycle downturn for the U.S. is still minimal.
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Declining stock prices are unsettling, but they pose an even greater risk when coupled with an economic slowdown. While the U.S. has recently experienced the former, the overall macroeconomic trend does not appear to be severely damaged. The outlook for growth remains steady, largely unchanged from recent trends. Consequently, speculations about the U.S. entering a business-cycle recession seem to stem more from emotional reactions to market volatility than a thorough evaluation of the available data.
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● A solid uptick in U.S. durable goods orders in July
● The New York Fed chief suggested that a September rate hike is now “less compelling”
● U.S. mortgage applications increased slightly last week
● China’s equity market rebounded on Thursday, buoyed by gains on Wall Street
● Eurozone money supply and private lending growth accelerated in July
In early trading on Tuesday, the U.S. stock market struggled to maintain its recovery, although Treasury yields made a notable rebound on August 25. At least for one day, the idea that demand for safe assets was limitless seemed to falter as investors began selling bonds.
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● The U.S. Services PMI shows healthy growth for August
● New home sales in the U.S. rose to a seven-month high in July
● U.S. consumer confidence increased sharply in August
● The S&P Case-Shiller index shows U.S. home prices continuing to rise at a moderate annual pace through June
● Redbook reports that U.S. chain-store sales rose in the first three weeks of August
In light of the recent upheaval in global equity markets, some may wonder if the U.S. is on the verge of recession. However, today’s initial August estimate of economic activity in the services sector from Markit Economics does not provide any evidence to support such concerns. The preliminary data for the U.S. Services PMI fell slightly to 55.2 this month, down from July’s 55.7, yet remains well above the neutral benchmark of 50.0. This indicates that the vital services sector—accounting for a significant portion of U.S. employment—continues to expand, albeit at a marginally slower pace.
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Global stock markets have experienced significant declines recently, raising concerns about future economic growth. However, markets are not always accurate predictors, making it difficult to ascertain whether the current turmoil will lead to a global contraction or simply a slowdown in growth. For the optimists among us, this recent market turbulence may be viewed as mere noise, with little impact on the real economy.
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