The latest US economic data paints a picture of resilient demand coexisting with easing inflation, giving the Federal Reserve more to weigh as it charts its next move on interest rates.
New orders for durable goods climbed 1.1% in July, comfortably beating the 0.5% that economists had expected. At the same time, the Fed's preferred inflation gauge, the personal consumption expenditures (PCE) price index, rose 0.2% for the month, matching forecasts. However, real consumer spending, adjusted for inflation, was flat, a noticeable slowdown from the solid gains seen in recent months.
Together, these numbers give the Fed more room to hold interest rates steady for now. All eyes are on Fed Chair Kevin Warsh, who is scheduled to speak Friday at the central bank's annual Jackson Hole symposium in Wyoming, with investors hoping for clarity on how policymakers view the lingering inflation pressures.
Durable Goods Orders Top Estimates, But Core Capex Weakens
According to Commerce Department figures released Wednesday, durable goods orders rose 1.1% month-over-month in July, a result that came in well above both the 0.5% forecast and the prior month's 0.5% gain, pointing to some underlying strength in manufacturing demand.
Beneath the surface, though, the details were less robust. Orders excluding transportation increased just 0.4%, missing the 0.6% estimate and falling short of the prior 0.7% reading. The category viewed as a proxy for business investment, non-defense capital goods orders excluding aircraft, edged up only 0.2%, well below the expected 0.7% and a sharp pullback from June's 1.2% jump. This suggests the headline beat was driven largely by volatile categories, while actual corporate spending intentions appear to have cooled.
Consumer Spending Cools, PCE Inflation In Line With Expectations
Commerce Department data released Wednesday showed that inflation-adjusted consumer spending was unchanged in July, following strong gains in both May and June. The PCE price index rose 0.2% from the prior month, and the core PCE gauge, which strips out food and energy, also rose 0.2%, with an annual increase of 3.3%.
The Fed's preferred measure of overall PCE inflation was up 3.7% from a year earlier, still well above the central bank's 2% target. The batch of figures points to a marked slowdown in economic activity in July following a strong summer spending season, though price pressures have yet to fully subside.
A separate report also released Wednesday showed that US economic growth in the second quarter was unchanged from its initial estimate, though the details revealed consumer spending was somewhat stronger than first reported.
Focus Turns to Jackson Hole for Fed Clarity
The release of these reports shifts market attention squarely to the Jackson Hole symposium on Friday. Investors will be listening closely to Fed Chair Kevin Warsh for fresh signals on the rate path, particularly how the central bank might balance the case for pausing hikes against further tightening, with inflation pressures stemming from the Iran conflict not yet fully dissipated.
While the year-over-year PCE reading remains well above the 2% objective, the softening in consumer spending and the tame inflation figures give the Fed some latitude to maintain its current policy stance. Market participants broadly expect Warsh's speech to serve as a key opportunity for the central bank to clarify its near-term position and address growing scrutiny from outside observers.
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