GDP Falls Short

There was no shortage of major economic news last week, but none caused much reaction. The Fed meeting produced no significant surprises, and the GDP report was roughly neutral overall. Mortgage rates ended last week a little lower.

The headline number for second quarter gross domestic product (GDP), the broadest measure of economic activity, showed annualized growth of just 6.5%, well below the consensus forecast of 8.5%. However, the details of the report revealed that the shortfall was almost entirely in areas which simply postponed growth until future quarters. For example, inventory drawdowns subtracted roughly 1.2% during the quarter, as supply shortages caused delays in the production of cars, homes, and many other items. These inventories will need to be replaced, adding to future economic activity. Underlying demand remained very strong, as personal consumption expenditures surged 11.8%. With the second quarter growth, the size of the economy is now larger than before the pandemic, and early estimates for third quarter GDP growth are for an even stronger 7.0% annualized rate.

The core PCE price index is the inflation indicator favored by the Fed. In June, core PCE was 3.5% higher than a year ago, a little below the consensus forecast, but up from an annual rate of increase of 3.4% last month and just 1.5% in February. This was the highest annual rate in decades. While economists have been expecting readings of this magnitude during the reopening of the economy, there are differing views on whether higher inflation will be a temporary spike or persist for years.

The Fed provided very little new or unexpected information at their meeting on Wednesday. Since March 2020, the Fed has been buying $120 billion of mortgage-backed securities (MBS) and Treasuries to help the economy offset the negative effects of the pandemic. This year, Fed officials have repeatedly said that they will not begin to scale back (taper) these purchases until the economy achieves “substantial further progress” toward reaching their labor market and inflation targets. Investors have been constantly seeking more concrete information about the projected timeline, but officials again provided no precise guidance. The statement released after the meeting simply said that the economy “has made progress” toward their goals this year. The increased demand for MBS from the Fed helped push mortgage rates to record lows, so investors are keeping a close eye on the future outlook for the bond buying program.

Looking ahead, investors will closely watch Covid case counts around the world. They also will look for hints from Fed officials about the timing for changes in monetary policy. Beyond that, the monthly Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the ISM national manufacturing index will come out on Monday and the ISM national services index on Wednesday.

– Michael Howell | Mortgage Loan Originator for Centennial Bank

Tel: 786-413-1271 Email: mhowell@my100bank.com Web: www.my100bank.com

You May Also Like
Seacoast Bank Opens New Branch in Weston

The expansion is intended to expand service to Seacoast’s customers and broaden its footprint in Broward.

Read More
Small Business Owners Are Not as Financially Prepared as They May Think, According to TD Bank Survey

Across the U.S., at a baseline, nearly all (94%) small business owners (SBOs) believe that their company is financially prepared for the next 12 to 18 months. But peel back

Read More
Fifth Third Bank Celebrates New Tamarac Location With Ribbon-Cutting

The Grand Opening marked the debut of the DeNovo Branch in the Broward market.

Read More
Banesco USA Banks on Broward With a New Plantation Office 

Belief in Broward County’s strengthening economy has drawn Banesco USA into the region.

Read More
Other Posts
Andare Residences by Pininfarina Breaking Ground on Las Olas

Delivery of completed units is expected to take 24 to 28 months after construction begins.

Read More
FC Barcelona Relocates U.S. Headquarters to Miami Amid Surge in Soccer Popularity

The Miami Downtown Development Authority announced the move last week.

Read More
Opening this Fall: The Omni Fort Lauderdale Hotel

Omni Hotels & Resorts will bring its first property in this market to the Broward County Convention Center.

Read More
Holy Cross Health Launches Healing Heroes Program To Honor Healthcare Workers Who Provide Compassionate Care

Patients can now recognize exceptional care while supporting Holy Cross Health’s mission.

Read More