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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

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Drew Limsky

Drew Limsky

Editor-in-Chief

BIOGRAPHY

Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.