Trend watch
First, an update regarding the short-lived Canadian railroad shutdown. The Canadian government issued a mandatory arbitration ruling, forcing both side to the negotiating table but also compelling workers to return to work while the two sides work out their differences. Yet, there is still a looming U.S. strike by the International Longshoremen's Association in October that could impact East Coast and Gulf ports.
Meanwhile, activity continues to ramp down in a fairly typical seasonal pattern (slides 5 and 6). It should stabilize in the week following the Labor Day holiday.
What’s new this week
- 2Q24 growth revised upward, reflecting solid economy, not weak (slide 7).
- The Fed’s favorite inflation gauge continues cooling (slide 8).
- Big 4 indicators point toward continued growth for U.S. economy (slide 9). Updated to include personal income and spending.
- New durable goods orders rebounded with core capital goods orders flattish (slide 10).
Our take
The last of the July economic data told a largely similar story as the prior few weeks – that the U.S. economy was doing just fine, thank you very much. The latest batch of incoming data, including an upward revision to second quarter economic growth, and stronger than expected personal income and spending figures, and flattish new orders of core capital goods.
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In other words, it was another week of generally solid economic data. Thus, the Great Growth Scare of August 2024, which shuddered through markets earlier this month, appears to be a distant memory.
Additionally, inflation readings confirmed that the Federal Reserve (Fed) no longer must fret about inflation and can do what it needs to do to support growth. That translates into beginning to lower interest rates, which seem calibrated for inflation with a 4-handle despite their preferred core inflation measure having drifted below 3% on a year-over-year basis (it was 2.6% through July; see slide 8). Alas, interest rates look overly restrictive if their aim is to extend the business cycle.
That said, as we have repeatedly said here, we’d caution against painting the U.S. economy with a broad brush. Its much more complex and nuanced than it appears.
The U.S. economy is definitely cooling, but it’s not weak, especially compared to pre-pandemic trends. We chalk up the recent hiccup in the data to further normalization, albeit uneven on a month-to-month basis. Accordingly, while we would be concerned about the speed of the cooling if it accelerates, we aren’t panicked that a recession is imminent.
Thankfully, market-based rate expectations have backed down from overly aggressive moves.
Bottom line
We maintain our view that the U.S. economy is cooling but not weak, especially when compared to pre-pandemic figures. However, it’s steadily becoming more apparent that interest rates are overly restrictive to the point of hampering growth. The Federal Reserve is on track for a rate cut in September.
Our full report is reserved for clients only. Let’s work together.
A caring advisor can help you uncover opportunities and take on challenges—and provide greater confidence, clarity, simplicity, and direction.