U.S. Economic Growth:
The latest economic data paints a mixed picture. Second-quarter GDP was revised up to 3.3%, primarily driven by inventory adjustments tied to first-quarter import surges. According to the latest Atlanta Fed GDP Now model, third-quarter growth is tracking a still-solid 3.1%, with Bloomberg noting that AI-related investment could account for roughly half of that gain.
Labor Market:
The job market has shifted meaningfully in the past month. August payrolls rose just 22,000—well below consensus—while the unemployment rate edged up to 4.3%. The Bureau of Labor Statistics’ annual benchmark revision cut 911,000 jobs from prior estimates, revealing that hiring has been weaker than reported. Wage growth has cooled to 3.7%, which may ease inflation pressures but also reduces households’ cushion against slower job gains. Despite the softer labor backdrop, consumer spending continues. July retail sales advanced 0.5%, indicating positive but moderating demand compared with spring levels.
Inflation:
Core CPI and PCE remain close to 3%, well above the Fed’s 2% target. Shelter costs have proven sticky, and new tariffs plus supply bottlenecks are putting renewed pressure on goods prices. Even so, the Federal Reserve is widely expected to cut rates at its next meeting as it weighs its dual mandate of maximum employment and stable prices.
Business Surveys:
The latest ISM Manufacturing survey remained in contraction territory at 48.7, though new orders improved above 50. Services activity improved to 52.0, with healthy new orders. Prices for both indices remain elevated but off recent highs. Additionally, both surveys reported a weak hiring environment.
Housing:
Housing data are similarly uneven. July housing starts bounced, but permits fell, and existing-home sales remain constrained by affordability. Limited supply continues to support prices even as higher mortgage rates dampen turnover. Recent mortgage rate declines should improve market dynamics.
Outlook:
The economic growth story is muddier now than at the start of the year. The labor market’s softness explains the Fed’s pivot toward monetary easing, which hopefully won’t fuel further inflation acceleration. Uncertainty, as measured by the NFIB Small Business Uncertainty Index, has remained elevated since late 2024, complicating investment and hiring decisions. We are hopeful for more clarity as tariff policy gets resolved by the courts in the coming months. A reinvigorated housing market, manufacturing onshoring, AI investment and associated productivity enhancements are all candidates for pushing the next leg of economic growth.
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Security, index and economic information are obtained from resources which CCM believes to be accurate, but no warrant is made to the accuracy or completeness of the information. Various indices described and discussed herein are unmanaged; investments cannot be made directly into an index. Indices do not incur fees that reduce performance. The performance and volatility of an index or mix of indices will not be the same as a CCM client account.
The term federal funds rate refers to the target interest rate set by the Federal Open Market Committee (FOMC). This target is the rate at which commercial banks borrow and lend their excess reserves to each other overnight.
Labor Market Statistics are derived from nonfarm payroll statistics released monthly by the Bureau of Labor.
The Consumer Price Index (CPI) released monthly by the Bureau of Labor Statistics is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
Personal Consumption Expenditures (PCE) released monthly by the Bureau of Economic Analysis includes a measure of consumer spending on goods and services among households in the U.S. The PCE is used as a mechanism to gauge how much earned income of households is being spent on current consumption for various goods and services.
The ISM Manufacturing index, also known as the purchasing managers’ index (PMI), is a monthly indicator of U.S. economic activity based on a survey of purchasing managers at manufacturing firms nationwide The ISM Services index is based on surveys sent to purchasing and supply companies of more than 400 services firms. Both are considered to be key indicators of the state of the U.S. economy.
The Bloomberg Professional service was used as reference for all economic statistics unless otherwise noted.
