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Solid Economic Growth

Overview: While the manufacturing sector remained weak, investors raised their outlook for overall economic growth again this week. As a result, mortgage rates moved higher.


Gross domestic product (GDP) is the broadest measure of economic activity. During the second quarter, GDP rose at an annualized rate of 2.4%, above the consensus forecast and up from 2% during the first quarter of 2023. Strength was seen in consumer and government spending, business investment, and inventory growth. Although many analysts have been predicting a recession due to the Federal Reserve’s aggressive monetary policy tightening, the economy has remained surprisingly resilient, and early forecasts are for even stronger growth during the third quarter.

The Personal Consumption Expenditures (PCE) Price Index is the inflation indicator favored by the Fed. In June, core PCE, which excludes food and energy to reduce volatility, was up 4.1% from a year ago, matching the consensus forecast. This was down sharply from an annual rate of 4.6% last month and the lowest level since September 2021. Despite the large drop, however, the annual rate of increase in core PCE remains far above the Fed's target of 2%. This is particularly relevant because how quickly inflation falls will determine how long the Fed will maintain tight monetary policy.

Another significant economic report released this week from the Institute of Supply Management displayed the prolonged struggles for manufacturers. After dropping to the lowest level since May 2020 last month, the ISM Manufacturing Index rose less than expected to just 46.4. Readings under 50 indicate a contraction in the sector, and this marked the ninth straight month below that level, the longest stretch in about 15 years. This data continues to reflect the consumer preference for services over goods since the economy reopened after the pandemic.


Core PCE (annual % change)

Week Ahead

August 3 — ISM Services Index

August 4 — Employment Report

August 10 — Consumer Price Index (CPI)


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