2Q Growth and Inflation Moderate, Job Market Healthy

BOTTOM LINE: US economic growth slowed to 2.6% in the second quarter, Bloomberg reported. Residential construction fell the most since 1995 during the second quarter, offsetting a 20.3% surge in commercial construction. Consumer spending rose at a 2.6% annual rate in the second quarter and is expected to accelerate to 3% next quarter. The PCE core, the Fed’s favorite inflation gauge, rose 2.7% versus a prior estimate of a 2.8% rise. Corporate profits soared 17.4% during the second-quarter from a year earlier. A gallon of regular gasoline at the pump cost $2.38 this week down from $2.85 during the second quarter. A recent Bloomberg/LA Times survey showed that 33% of Americans said lower gas prices were allowing them to spending more on other goods. As a result, the Intl. Council of Shopping Centers this week raised its September forecast for same-store-sales to 4% from a prior forecast of 3.5%. I expect 3Q GDP growth to dip to around 2.0-2.5% before rebounding back above 3% during the fourth quarter.

Fewer Americans filed for unemployment benefits last week, signaling the labor market remains healthy, Bloomberg reported. The four-week moving-average of claims fell to 315,500. The unemployment rate for those eligible for benefits, which tracks the US unemployment rate, held steady at 1.9%. The unemployment rate last month fell to a historically low 4.7%. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.