Growth is still solid, jobs look steady, and prices remain too high to expect lower interest rates soon.
The economy is still growing, but not speeding up: Real GDP (the total value of everything the US economy produces) was 2.1% compared to last quarter, unemployment is 4.2%, and the Fed's rate stays near 3.6%. The main change this week was cooler short-term inflation, which could ease pressure on interest rates, but fighting near the Strait of Hormuz could raise gas prices and blunt that help. What is keeping things steady is a job market that still looks balanced, with new unemployment claims staying low, even as rates remain high enough to slow borrowing. The next big test is the PCE report (the inflation measure the Fed watches most), because it could change the outlook for rates. Not investment advice.
The biggest moves in the numbers we watch since our last update.
CPI, 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. Fighting near the Strait of Hormuz could raise oil and gas prices, which would squeeze household budgets. Watch the next Core CPI report, CPI without food and energy, because another reading above 3% would mean price pressure is not fading enough.
CPI, 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. Fighting near the Strait of Hormuz could raise oil and gas prices, which would squeeze household budgets. Watch the next Core CPI report, CPI without food and energy, because another reading above 3% would mean price pressure is not fading enough.
The job market still looks balanced, with initial claims, the number of people who filed for unemployment benefits for the first time that week, at 214,250 after 219,000 the week before. Watch the next unemployment rate report, because a clear rise above 4.2% would mean the job market is weakening.
Market stress looks contained for now, though caution is up, with the gap between 2-year and 10-year Treasury rates at 42.0 basis points, one hundredth of a percentage point. Fighting near the Strait of Hormuz could push oil prices higher and make markets more shaky. Watch oil prices and Middle East headlines, because a longer disruption would likely raise market stress and household energy costs.
Growth still looks steady, with Real GDP, GDP after adjusting for inflation, running at 2.10% compared to last quarter. Fighting near the Strait of Hormuz could raise fuel costs, which can slow spending by families and businesses. Watch the next GDP update, because a clear downgrade would mean the economy is losing momentum.
The Fed, the US central bank, is still on hold, with its short-term policy rate midpoint at 3.625%. Watch the next Fed meeting, because any sign rates may stay high longer would mean borrowing costs could remain high for mortgages, car loans, and credit cards.
Geopolitical risk spiked as US-Iran strikes intensified and Strait of Hormuz shipping and oil flows fell sharply. Energy supply shock fears dominated despite some softer inflation offsets.
Jobless Claims: 214,250.00 (no pre-release consensus available).
CPI above estimate: actual 3.53 vs 3.32.
Jobless Claims: 219,000.00 (no pre-release consensus available).
The week's events, lined up with how they likely affected the economy.
The fighting near the Strait of Hormuz could quickly raise oil and gas prices, which may lift inflation and hurt stocks for a while.
Oil prices may jump because a key shipping route closed again, which could raise gas prices and add pressure to household budgets soon.
Fighting between the US and Iran could push up oil and gas prices fast, which can raise costs for drivers and make markets more shaky.
Fighting near the Strait of Hormuz is cutting oil shipments, which could raise gas prices and make markets more shaky soon.
A new shutdown in the Hormuz Strait could push oil and gasoline prices up fast, which may raise costs for families and rattle markets.
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.
Realized GDP: 2.10% QoQ SAAR
Real GDP growth is 2.10% QoQ SAAR and 2.68% YoY.
Core CPI: 2.59% YoY; 3m trend: 3.01%
Core inflation is 2.59% YoY with a 3m annualized trend of 3.01% (momentum gap 0.42 ppts).
Unemployment: 4.2%; claims 4wma: 214,250
Unemployment rate is 4.2% (YoY change -0.10 ppts); initial claims 4wma 214,250.
Policy mid: 3.625%; gap: 0.505 ppts
Policy midpoint is 3.625% with a 30-day change of +0.000 ppts; market rate gap (2Y minus policy) is 0.505 ppts.
2s10s: 42.0 bps
The 2s10s yield spread is 42.0 bps and the curve is normal.
Things that could change our view of the economy before next week's update.
The next real swing points are inflation through energy prices, the Fed decision, and the first look at GDP. Inflation just cooled, but it is still running a bit too fast, so any jump in oil or a firmer Fed message could change the picture quickly. Growth and jobs still look steady, which means a clear break in claims or GDP would matter more than usual.
The Strait of Hormuz disruption is the biggest near-term risk because it can raise gas prices fast. If oil stays high for weeks, softer inflation could reverse and the Fed could keep rates high for longer.
The Fed Policy Decision on July 29 matters because policy is on hold now, but Fed talk already leans tougher on inflation. If officials say rates may need to rise, or stay high longer, borrowing costs could stay painful for mortgages, car loans, and credit cards.
Real GDP is running at 2.10% QoQ (compared to last quarter) at an annual rate, which says growth is still positive. If the July 30 GDP report comes in clearly weaker, it would raise concern that spending and hiring may cool next.
Initial claims (the number of people who filed for unemployment benefits for the first time that week) have a 4-week average of 214,250, which is still calm. If claims stay near this level, it would support the view that jobs and consumer spending can keep the economy growing.
Core CPI (Consumer Price Index, the main measure of how much prices are going up, without food and energy) is 2.59% YoY (compared to the same time last year), but its 3-month pace is still 3.01%. If the next inflation readings keep that short-term pace moving lower, the Fed would have more room to stop talking tough.
Claims are one of the fastest reads on the job market, and right now jobs still look steady with unemployment at 4.2%.
If claims jump well above recent levels, slowdown worries would rise fast. If claims stay low, it supports steady spending and growth.
The Fed is on hold now, but inflation is still not fully back to normal and officials have been warning rates could stay high.
If the Fed sounds more open to rate cuts, markets may cheer and loan-rate pressure could ease. If it sounds tougher, stocks could wobble and borrowing costs may stay high longer.
Growth has been holding up, so this report will show whether the economy is still moving forward or starting to lose speed.
A much stronger reading would support the idea that the economy can handle high rates. A much weaker reading would raise fears of slower hiring and weaker spending.
This is the closest swing scenario because geopolitical risk just spiked and shipping through the Strait of Hormuz has fallen sharply. That matters now because inflation had only just started to cool, so higher energy prices could undo that progress quickly.
Confidence is medium because the current growth and labor data look steady, but the next move depends heavily on a few near-term reports and fast-moving oil news.
A look back at how the economy's signals have shifted week by week.
CPI, 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. Fighting near the Strait of Hormuz could raise oil and gas prices, which would squeeze household budgets. Watch the next Core CPI report, CPI without food and energy, because another reading above 3% would mean price pressure is not fading enough.
Inflation is easing, but it is still running too high. Core CPI (CPI without food and energy, which move around a lot month to month) was 2.85% YoY (compared to the same time last year). Oil prices jumped on Iran fears, which could lift gas prices and keep loans and mortgages expensive. Watch the next CPI report: if core prices stay near 3% or the 3-month trend stays high, inflation is not cooling enough.
PCE (Personal Consumption Expenditures, the inflation measure the Fed watches most) rose 3.41% compared to the same time last year, cooler than 3.49% expected and down from 3.8% in April. War fears tied to Iran could lift oil prices, which would raise gasoline and heating costs for households. Watch Core CPI (CPI without food and energy, which move around a lot month to month). If it stays near 3% or rises, inflation may stop improving.
PCE (Personal Consumption Expenditures, the inflation measure the Fed watches most) rose 3.41% compared to the same time last year, cooler than 3.49% expected and down from 3.8% in April. News reports said inflation topped 4% in May, which could keep credit cards, car loans, and mortgages expensive. Next, watch Core CPI (CPI without food and energy, which move around a lot month to month). If it stays near 3% or rises, rate cuts may wait.
CPI, the Consumer Price Index, rose 4.25% compared to the same time last year, cooler than 4.31% expected but above April's 3.78%. Oil prices fell on hopes of a deal ending the Iran war, which could lower gas prices and ease inflation. Watch the next Core CPI report, CPI without food and energy, which would signal renewed pressure if it rises above April's 2.74%.
CPI (Consumer Price Index, the main measure of how much prices are going up) rose 4.25%, cooler than 4.31% expected, but up from 3.78% in April. The Iran war could keep gas prices higher, which would raise costs for families and make inflation harder to cool. Watch next month's CPI report. If it stays above 4% compared to the same time last year, inflation is not easing enough.
