Despite moments of trepidation, the stock market extended its winning streak to three straight weeks. Even with its rough start, August marked the fourth month in a row of positive returns. Several encouraging reports suggested that the economy is holding up and inflation is moderating, keeping alive hopes of a soft landing and a September rate cut by the Federal Reserve. The Dow posted the largest gain to close out the week at an all-time high, and the Global Dow also soared. The large caps of the S&P 500 posted a modest gain, the small caps of the Russell 2000 treaded water, and the tech-heavy NASDAQ ended the week in the red. Financials, energy, and materials were the top-performing sectors, while information technology and communication services lagged. Bond prices fell, pushing up 10-year Treasury yields. Regardless of heightened geopolitical tensions, crude oil prices slipped due to expectations of weaker global demand. Gold prices fell and the dollar rose.
Last Week’s Economic News
- The economy grew at an annualized rate of 3.0% in the second quarter, according to the second estimate of gross domestic product. GDP accelerated at a rate of 1.4% in the first quarter. The personal consumption expenditures (PCE) price index increased 2.5%. Excluding food and energy prices, the PCE price index increased 2.8%. Consumer spending, as measured by the personal consumption expenditures index, rose 2.9%. Spending on goods increased 3.0%, while spending on services climbed 2.9%. Residential fixed investment declined 2.0%, while nonresidential (business) fixed investment increased 4.6%. Exports rose 1.6% and imports, which are a negative in the calculation of GDP, jumped 7.0%.
- Prices consumers paid for goods and services, as measured by the personal consumption expenditures (PCE) price index, rose 0.2% in July following a 0.1% increase in June. Excluding food and energy, prices increased 0.2%. Over the 12 months ended in July, the PCE price index rose 2.5%, the same as the 12-month estimate for the period ended in June. Prices for goods decreased by less than 0.1%, and prices for services increased 3.7%. The July 12-month increase in prices, excluding food and energy, was 2.6%, unchanged from the 12 months that ended in June. Also in July, personal income increased 0.3%, while disposable personal income advanced 0.3%. Consumer spending, as measured by the personal consumption expenditures (PCE) index, increased 0.5% in July, up from the June estimate of 0.3%.
- Durable goods orders shot up 9.9% in July after dropping 6.9% in June. Excluding transportation, new orders decreased 0.2%. Excluding defense, new orders increased 10.4%. The 34.8% jump in new orders for transportation equipment (mainly aircraft) drove the overall increase in July. New orders for nondefense capital goods in July increased 41.9%.
- According to the advance report on international trade in goods (excluding services), the deficit for July widened by $6.1 billion, or 6.3%, from June. Exports were virtually unchanged, while imports decreased $6.1 billion, or 2.3%. Since July 2023, exports have risen 4.4% and imports have surged 8.2%.
- The national average retail price for regular gasoline was $3.313 per gallon on August 26.
- For the week ended August 24, there were 231,000 new claims for unemployment insurance.
Eye on the Week Ahead
Results from the August purchasing managers’ indexes (PMI) for manufacturing and services will be released this week. Two important employment reports for August are also coming out. Labor market data is highly anticipated at this critical juncture for the economy, especially after last month’s disappointing jobs report raised expectations that the Federal Reserve will cut interest rates substantially in September.
Have a nice week!
Sincerely,
Robert G. Carpenter