Growth is still solid and jobs are steady, but prices remain a concern, so interest rates are likely to stay high.
The economy is still growing, but not speeding up: growth is flat lately, inflation is cooling, unemployment is 4.1%, and the Fed rate is about 3.6%. The main move this week was cooler short-term inflation, which could ease pressure for higher rates, though oil-war news could still lift gas and home energy bills. What is holding things steady is the job market, because layoffs are still low and that helps keep spending from dropping fast. The next big thing to watch is the jobs report, because it could quickly change the outlook for growth and interest rates. Not investment advice.
The biggest moves in the numbers we watch since our last update.
PCE, Personal Consumption Expenditures, the inflation measure the Fed watches most, rose 3.34%, cooler than 3.37% expected and down from 3.72% in June. Oil and gas swings from the Iran war could raise gasoline and home energy bills for families. Next, watch Core PCE, PCE without food and energy. If it stays near 3.3%, inflation is not easing enough.
PCE, Personal Consumption Expenditures, the inflation measure the Fed watches most, rose 3.34%, cooler than 3.37% expected and down from 3.72% in June. Oil and gas swings from the Iran war could raise gasoline and home energy bills for families. Next, watch Core PCE, PCE without food and energy. If it stays near 3.3%, inflation is not easing enough.
The job market still looks firm, with jobless claims at 205,500 this week after 204,250 last week. Next, watch the unemployment rate. If it rises clearly above 4.1%, the job market would look less tight.
Risk mood is uneasy, even though the yield curve, the line showing interest rates for US government bonds of different lengths, is still positive at 47.0 bps (one hundredth of a percentage point). The Iran war is keeping oil, gas, and stock markets jumpy, which can raise household energy costs. Next, watch oil prices and bond markets. A bigger jump would signal more stress for markets and the economy.
Growth still looks steady, with the GDP nowcast at 2.19% SAAR, a yearly pace based on current data, and little change lately. The Iran war could lift energy costs and make people and businesses more cautious about spending. Next, watch the next GDP update. A clear drop would mean the economy is losing speed.
The Fed, the US central bank, is on hold, with its policy rate midpoint at 3.625%. Fed officials said inflation is still a problem, which means credit cards, car loans, and mortgages could stay expensive. Next, watch the next Fed meeting and Core PCE. Cooler inflation would make rate cuts more likely.
Geopolitical risk spiked as Iran war/sanctions drove oil and cross-asset volatility while U.S.-Canada trade tensions escalated after 50% tariffs took effect and talks failed.
Jobless Claims: 205,500.00 (no pre-release consensus available).
PCE below estimate: actual 3.34 vs 3.37.
Jobless Claims: 204,250.00 (no pre-release consensus available).
The week's events, lined up with how they likely affected the economy.
A long war in Iran could keep gasoline and home energy bills higher, while making stocks more jumpy for people managing their own money.
PCE (Personal Consumption Expenditures, the inflation measure the Fed watches most) rose faster than expected in July, which could keep borrowing costs high and pressure stocks and bonds.
Core PCE (PCE without food and energy) stayed high in July, which raises the chance that borrowing costs stay high for longer.
Fed officials said inflation is still a problem, which raises the chance that borrowing costs stay high and puts pressure on stocks and rate-sensitive parts of the economy.
Prices are still rising too fast, and the economy is still growing, so borrowing costs may stay high and pressure stocks, bonds, and household budgets.
The 11 main US stock market industries, plotted by whether the economy is helping or hurting them, and how the industry itself is doing. Click any industry for details.
Each force, where it stands today, which way it's headed, and the data behind it.
GDP nowcast: 2.19% SAAR
GDP nowcast for the current quarter is 2.19% QoQ SAAR; latest realized GDP is 1.50% QoQ SAAR and 2.10% YoY.
Core CPI: 2.48% YoY; 3m trend: 1.59%
Core inflation is 2.48% YoY with a 3m annualized trend of 1.59% (momentum gap -0.88 ppts).
Unemployment: 4.1%; claims 4wma: 205,500
Unemployment rate is 4.1% (YoY change +0.00 ppts); initial claims 4wma 205,500.
Policy mid: 3.625%; gap: 0.565 ppts
Policy midpoint is 3.625% with a 30-day change of +0.000 ppts; market rate gap (2Y minus policy) is 0.565 ppts.
2s10s: 47.0 bps
The 2s10s yield spread is 47.0 bps and the curve is normal.
Things that could change our view of the economy before next week's update.
The big picture changes fastest if jobs weaken or inflation heats back up. The closest turning point is inflation, because CPI has cooled but recent PCE data and Fed comments say price pressure may not be fully beaten yet.
The labor market still looks firm with unemployment at 4.1% and initial claims at 205,500. A weak Employment Situation report would raise slowdown fears fast, while a strong one would support growth but could keep borrowing costs high.
CPI (Consumer Price Index, the main measure of how much prices are going up) is cooling, with Core CPI at 2.48% compared to the same time last year and a 3-month trend at 1.59%. If the next CPI report stays near that cooler pace, rate cut hopes rise. If it jumps back up, the hotter inflation story returns quickly.
Fed officials are still warning about inflation, even after this week's softer CPI signal. If jobs stay solid and inflation reports run hot, the Federal Reserve, the US central bank, could keep rates high longer, which matters for mortgages, car loans, and stock prices.
The Iran war and new sanctions could push oil and gas prices higher over the next few weeks. That would hit gas bills and shipping costs, and it could push inflation back up even if other prices cool.
The GDP nowcast is 2.19% compared to last quarter at an annual rate, which points to steady growth for now. If that pace holds while inflation cools, the soft landing stays in place. If growth slips toward 1% or lower, slowdown worries would rise.
Claims are still low, so this report will show whether layoffs are staying contained before the monthly jobs report.
If claims jump well above recent levels, slowdown fears rise. If they stay near 205,500, the labor market still looks firm.
With unemployment at 4.1%, this is the clearest near-term test of whether the soft landing is holding.
A much weaker report would push markets toward a growth slowdown view. A much stronger report could keep rate cut hopes in check.
A second claims reading right before CPI can confirm whether any labor weakness is real or just noise.
Another low reading would support steady growth. A second high reading in a row would make investors take labor weakness more seriously.
This matters most because CPI has cooled, but hotter PCE and energy risks could still reverse that progress.
If CPI comes in much hotter than expected, markets may expect rates to stay high longer. If it comes in cooler, the soft landing story gets stronger.
This is the closest scenario to triggering because recent PCE ran hotter than expected and energy risks are rising. CPI cooled, so it is not here yet, but one more hot inflation report could shift the story fast.
Confidence is medium because growth and labor still look steady, but the next jobs report and CPI report could change the outlook quickly.
A look back at how the economy's signals have shifted week by week.
PCE, Personal Consumption Expenditures, the inflation measure the Fed watches most, rose 3.34%, cooler than 3.37% expected and down from 3.72% in June. Oil and gas swings from the Iran war could raise gasoline and home energy bills for families. Next, watch Core PCE, PCE without food and energy. If it stays near 3.3%, inflation is not easing enough.
CPI (Consumer Price Index, the main measure of how much prices are going up) rose 3.36% compared to the same time last year, hotter than 2.92% expected, but down from 3.46% in June. Watch Core CPI (CPI without food and energy, which move around a lot month to month): if it stays near 2.5% or falls, price pressure is still easing.
CPI (Consumer Price Index, the main measure of how much prices are going up) was 3.36%, hotter than 2.92% expected, but down from 3.46% in June. Lower oil prices could ease gas costs, and cooler inflation could help bring borrowing costs down over time. Next, watch Core CPI (CPI without food and energy, which move around a lot month to month). If it stays near 2.5% compared to the same time last year, inflation is still cooling.
PCE (Personal Consumption Expenditures, the inflation measure the Fed watches most) rose 3.29% compared to the same time last year, hotter than 3.24% expected but down from 4.08% in May. Fighting around oil shipments could raise gas and heating costs, though signs of calmer tensions later in the week may ease that pressure. Watch the next Core CPI (CPI without food and energy, which move around a lot month to month) report. If it stays near 3% per year, inflation is not cooling fast enough.
PCE, Personal Consumption Expenditures, the inflation measure the Fed watches most, rose 3.29%, hotter than 3.24% expected but down from 4.08% in May. Oil near $100 and new tariffs could raise gas and everyday goods prices. Watch next month's PCE report. Another reading above 3% would mean inflation is easing slowly.
CPI (Consumer Price Index, the main measure of how much prices are going up) rose 3.53% compared to the same time last year, hotter than 3.32% expected, but down from 4.17% in May. Oil near $100 and gas above $4 could push up fuel and shipping costs for households soon. Watch the next CPI report: another reading above 3.5% would suggest price pressures are not easing enough.
