Evelyn Reynolds

The Personal Consumption Expenditures Index climbed 2.5 percent, still more than the Fed’s 2 percent target, as price increases take time to come down.The Federal Reserve’s preferred inflation measure continued to gradually cool overall in June even as a “core” inflation measure held steady, likely keeping the central bank on track for a rate cut later this year without stoking any urgency for a reduction at its meeting next week.The Personal Consumption Expenditures index was 2.5 percent higher in June than a year earlier, slower than May’s 2.6 percent and in line with economist expectations.A “core” price measure that strips out food and fuel costs for a better sense of the underlying inflation trend proved more stubborn. Yearly core inflation was 2.6 percent, matching its reading in May. And on a monthly basis, both measures of inflation climbed modestly.Overall, the report served as a reminder that inflation is substantially lower than it was at its 2022 peak, but is not yet entirely vanquished.This inflation measure peaked above 7 percent in 2022, so June’s reading is much cooler. But inflation has lingered above the Fed’s 2 percent goal for more than three years now. That long period of rapid increases has left price levels much higher than they were as recently as 2020, a reality that has caused dismay among consumers who continue to balk at heftier price tags. That in turn has been bad news for incumbent Democrats, who have struggled to take credit for a strong job market and a burst of infrastructure spending at a time when inflation is souring voters’ view of the economy.The long period of inflation has also made the Fed cautious. Policymakers have been holding interest rates at 5.3 percent for the past year, making it expensive to borrow money in a bid to weigh on consumer demand and cool the broader economy. Even though inflation is now coming down — suggesting that rates may no longer need to be so punishingly high — policymakers have not wanted to cut borrowing costs before they are sure that they have fully wrestled price increases under control.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

Participation in the labor force has surged among women in their prime working years. But for those with children under 5, the gains may have peaked.Jessica Cuevas loved her job as a college counselor at a high school. But after giving birth to a son in January 2021, she switched to a remote corporate job at a grocery store chain because it gave her more flexibility and saved her commuting time. After her second son was born two years later, she quit that job, too.She had been relying on her mother for help, but her parents have been spending more time in Mexico, leaving her without an affordable and reliable child care option.Ms. Cuevas, who is 35 and lives in Chicago, works part time from home for an education nonprofit, though the work is sporadic and the pay is inconsistent. She wants a full-time job — in part so she and her husband can buy a bigger house — but she is concerned that the expense of child care would wipe out any financial upside.“I feel like right now, considering the economy, considering just the cost of living, we feel stuck,” she said.The share of women in their prime working years who are in the labor force has reached new highs coming out of the pandemic, hitting a record 78.1 percent in May.But there are signs that the labor force participation gains among women with children under 5 has plateaued since September, according to an analysis from the Hamilton Project, an economic policy research group at the Brookings Institution.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

Gross domestic product rose at a 2.8 percent annual rate in the second quarter, new evidence of the economy’s resilience despite high interest rates.Economic growth picked up more than expected in the spring, as cooling inflation and a strong labor market allowed consumers to keep spending even as high interest rates weighed on their finances.Gross domestic product, adjusted for inflation, increased at a 2.8 percent annual rate in the second quarter, the Commerce Department said on Thursday. That was faster than the 1.4 percent rate recorded in the first quarter, but shy of the unexpectedly strong growth in the second half of last year.Consumer spending, the backbone of the U.S. economy, rose at a 2.3 percent annual rate in the second quarter — a solid pace, albeit much slower than in 2021, when businesses were reopening after pandemic-induced closings. Business investment in equipment rose at its fastest pace in more than two years. Inflation, which picked up unexpectedly at the start of the year, eased in the quarter.The data is preliminary and will be revised at least twice.Taken together, the findings suggest that the economy remains on track for a rare “soft landing,” in which inflation eases without triggering a recession. That is something few forecasters considered likely when the Federal Reserve began raising interest rates two years ago to combat inflation.“It’s the perfect landing,” said Sam Coffin, an economist at Morgan Stanley.Recession fears re-emerged in recent months, first when inflation briefly surged and then when the previously rock-solid job market showed signs of cracking in the spring. But recent data, including the surprisingly strong second-quarter growth figures, indicate that the expansion is on firm footing.“The economy is in a transition, but it’s in a good place,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “The economy is slowing from very strong growth in the second half of last year. We’re just settling down into something that’s a little more sustainable.” More

Trends already underway make for a sunny outlook over the next few years. The question is who will get to take credit.The next couple of years are shaping up to be solid for the U.S. economy. Inflation is returning to normal. As that happens, the Federal Reserve is preparing to cut interest rates. A huge burst of infrastructure spending under the Biden administration has taken time to ramp up, but projects both small and large are likely to break ground in earnest in 2025 and 2026.Things can always go wrong — the job market could cool more than expected, financial market problems could surface, and risks tied to the election in November could stoke uncertainty — but the base-case outlook is bright. The question now is who will get to take credit for it.One clear answer: It won’t be the person who shepherded some of the policies that are laying the positive groundwork. President Biden announced on Sunday that he was ending his candidacy for re-election, passing the Democratic baton to Vice President Kamala Harris.Mr. Biden isn’t entirely responsible for the sunny outlook. White House officials play a relatively minor role in slowing inflation and exert no direct control over interest rates. But big policy packages passed on his watch are helping to fuel a burst in green-energy, manufacturing and infrastructure investment that is expected to continue over the next several years. Expansions of dams and locks will be underway. Dozens of airport upgrades will be completed. Semiconductor factories will begin churning out chips.It’s a reminder that big and potentially transformative public investments can take time — and multiple political cycles — to play out. It could also be an opportunity for the next resident of the White House to take a victory lap.Former President Donald J. Trump is already hinting at an optimistic future on the campaign trail. The Republican platform, which he had a heavy hand in shaping, pledged to “destroy inflation” and vowed that interest rates would be lower while declaring that the Republican Party will be one of infrastructure and manufacturing. If economists’ most likely projections come true, those promises should be well within reach.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

Economic activity in the U.S. was considerably stronger than expected during the second quarter, according to an initial estimate Thursday from the Commerce Department.
Real gross domestic product, a measure of all the goods and services produced during the April-through-June period, increased at a 2.8% annualized pace adjusted for seasonality and inflation. Economists surveyed by Dow Jones had been looking for growth of 2.1% following a 1.4% increase in the first quarter.

Consumer spending helped propel the growth number higher, as did contributions from private inventory investment and nonresidential fixed investment.

Personal consumption expenditures, the main proxy in the Bureau of Economic Analysis report for consumer activity, increased 2.3% for the quarter, up from the 1.5% acceleration in Q1. Both services and goods spending saw solid increases for the quarter.
On the downside, imports, which subtract from GDP, jumped 6.9%, the biggest quarterly rise since Q1 of 2022.
Stock market futures drifted higher following the report while Treasury yields moved lower.
There was some good news on the inflation front: the personal consumption expenditures price index, a key measure for the Federal Reserve, increased 2.6% for the quarter, down from the 3.4% move in Q1. Excluding food and energy, core PCE prices, which the Fed focuses on even more as a longer-term inflation indicator, was up 2.9%, down from 3.7% in the prior period.

The so-called chain-weighted price index, which takes into account changes in consumer behavior, increased 2.3% for the quarter, below the 2.6% estimate.
One other key variable, final sales to private domestic purchasers, which the Fed considers a good indicator of underlying demand, accelerated at a 2.6% pace, the same as in the prior quarter.
However, the report also indicated that the personal savings rate continues to decelerate, at 3.5% for the quarter, compared to 3.8% in Q1.
There have been signs of cracks lately in the consumer picture.
A report Wednesday from the Philadelphia Federal Reserve showed credit card balances at an all-time high for data going back to 2012. Revolving debt balances also reached a new high even as banks reported tightening credit standards and declining new card originations.
However, retail sales numbers have continued to climb indicating that consumers are weathering the headwinds of high interest rates and persistent inflation.
There also is pressure in the housing market: Sales are declining while home prices continue to climb, putting pressure on first-time homebuyers.
Federal Reserve officials are expected to hold interest rates steady when they meet next week, though market pricing is pointing to the first cut in four years in September. Policymakers have been circumspect about when they might start reducing rates, though recent comments indicate more of a willingness to start easing policy and most central bankers have said they see further increases as unlikely.
This is breaking news. Please check back for updates. More

The report on gross domestic product offered new evidence of the economy’s resilience in the face of high interest rates.Economic growth remained solid in the spring, as cooling inflation and a strong labor market allowed consumers to keep spending even as high interest rates weighed on their finances.Gross domestic product, adjusted for inflation, increased at a 2.8 percent annual rate in the second quarter, the Commerce Department said on Thursday. That was faster than both the 1.4 percent rate recorded in the first quarter and than forecasters’ expectations, but down from the unexpectedly strong growth in the second half of last year.Consumer spending, the backbone of the U.S. economy, rose at a 2.3 percent annual rate in the second quarter — a solid pace, albeit much slower than in 2021, when businesses were reopening after pandemic-induced closings. Inflation, which picked up unexpectedly at the start of the year, eased in the second quarter.The data is preliminary and will be revised at least twice.Taken together, the data suggested that the economy remains on track for a rare “soft landing,” in which inflation cools without triggering a recession. That is something few forecasters considered likely when the Federal Reserve began raising interest rates to combat inflation two years ago.“The economy is in a transition, but it’s in a good place,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “The economy is slowing from very strong growth in the second half of last year. We’re just settling down into something that’s a little more sustainable.”Fed officials will meet next week to weigh when to begin lowering interest rates, which they have held at their current level, the highest in decades, for the past year. Hardly anyone expects policymakers to cut rates next week, but they could signal that such a move could come as soon as September if inflation continues to cool.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

President Biden has not given his vice president an expansive economic portfolio. But she has engaged on issues of small-business lending, help for parents and more.Shortly after the Biden administration took office in 2021, Vice President Kamala Harris started calling the chief executives of large banks, including JPMorgan Chase and Bank of America.The federal government was making hundreds of billions of dollars available for banks to lend to small businesses to keep them afloat during the pandemic recession. Ms. Harris told the executives they needed to be lending more, faster, particularly to minority-owned businesses that data suggested were struggling to gain access to the money.The calls represented one of the earliest and most visible forays Ms. Harris made in devising and carrying out the Biden administration’s economic agenda, and illustrated the sort of economic policy niche that she has filled as vice president.Current and former administration officials, progressive leaders outside the White House and allies of Ms. Harris roundly agree that the vice president, who is now the leading candidate to secure the Democratic presidential nomination, did not play a major role in the creation of the sweeping economic legislation that has defined President Biden’s time in office.Ms. Harris was rarely a loud voice in major economic debates, like the ones over how to counter soaring inflation in 2021 and 2022. She did sometimes attend economic briefings, but was not always a big contributor in them. One attendee recalled her coming to an economic briefing, but simply listening to the presentation while Mr. Biden asked questions.Other officials say Ms. Harris largely focuses her questions for economists on how certain policies affect workers and families at a personal level — a trait she shares with the president.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

Wall Street’s favorite recession signal started flashing red in 2022 and hasn’t stopped — and thus far has been wrong every step of the way.
Depending on which duration point you think is most relevant, the yield curve has been inverted either since July 2022 or October of the same year. An inverted curve has signaled nearly every U.S. recession.
“I just don’t see how a curve can be this wrong for this long. I’m leaning toward it being broken, but I haven’t fully capitulated yet,” said Joseph LaVorgna, chief economist SMBC Nikko Securities.
The Commerce Department on Thursday is expected to report that GDP accelerated 2.1% in the second quarter of 2024.

Pedestrians walk along Wall Street near the New York Stock Exchange (NYSE) in New York, US, on Thursday, May 16, 2024. 
Alex Kent | Bloomberg | Getty Images

Wall Street’s favorite recession signal started flashing red in 2022 and hasn’t stopped — and thus far has been wrong every step of the way.
The yield on the 10-year Treasury note has been lower than most of its shorter-dated counterparts since that time — a phenomenon known as an inverted yield curve which has preceded nearly every recession going back to the 1950s.

However, while conventional thinking holds that a downturn is supposed to occur within a year, or at most two years, of an inverted curve, not only did one not occur but there’s also nary a red number in sight for U.S. economic growth.
The situation has many on Wall Street scratching their heads about why the inverted curve — both a signal and, in some respects, a cause of recessions — has been so wrong this time, and whether it’s a continuing sign of economic danger.
“So far, yeah, it’s been a bald-faced liar,” Mark Zandi, chief economist at Moody’s Analytics, said half-jokingly. “It’s the first time it’s inverted and a recession didn’t follow. But having said that, I don’t think we can feel very comfortable with the continued inversion. It’s been wrong so far, but that doesn’t mean it’s going to be wrong forever.”
Depending on which duration point you think is most relevant, the curve has been inverted either since July 2022, as gauged against the 2-year yield, or October of the same year, as measured against the 3-month note. Some even prefer to use the federal funds rate, which banks charge each other for overnight lending. That would take the inversion to November 2022.

Whichever point you pick, a recession should have arrived by now. The inversion had been wrong only once, in the mid-1960s, and has foretold every retrenchment since.

According to the New York Federal Reserve, which uses the 10-year/3-month curve, a recession should happen about 12 months later. In fact, the central bank still assigns about a 56% probability of a recession by June 2025 as indicated by the current gap.
“It’s been such a long time, you have to start to wonder about its usefulness,” said Joseph LaVorgna, chief economist SMBC Nikko Securities. “I just don’t see how a curve can be this wrong for this long. I’m leaning toward it being broken, but I haven’t fully capitulated yet.”

The inversion is not alone

Making the situation even more complicated is that the yield curve isn’t the only indicator showing reason for caution about how long the post-Covid recovery can last.
Gross domestic product, a tally of all the goods and services produced across the sprawling U.S. economy, has averaged about 2.7% annualized real quarterly growth since the third quarter of 2022, a fairly robust pace well above what is considered trend gains of around 2%.
Prior to that, GDP was negative for two straight quarters, meeting a technical definition though few expect the National Bureau of Economic Research to declare an official recession.
The Commerce Department on Thursday is expected to report that GDP accelerated 2.1% in the second quarter of 2024.

However, economists have been watching several negative trends.
The so-called Sahm Rule, a fail-safe gauge that posits that recessions happen when the unemployment rate averaged across three months is half a percentage point higher than its 12-month low, is close to being triggered. On top of that, money supply has been on a steady downward trajectory since peaking in April 2022, and the Conference Board’s index of leading economic indicators has long been negative, suggesting substantial headwinds to growth.
“So many of these measures are being questioned,” said Quincy Krosby, chief global strategist at LPL Financial. “At some point, we’re going to be in recession.”
Yet no recession has appeared on the horizon.

What’s different this time

“We’ve got a number of different indicators that just haven’t panned out,” said Jim Paulsen, a veteran economist and strategist who has worked at Wells Fargo among other firms. “We’ve had a number of things that were recession-like.”
Paulsen, who now writes a Substack blog called Paulsen Perspectives, points out some anomalous occurrences over the past few years that could account for the disparities.
For one, he and others note that the economy actually experienced that technical recession prior to the inversion. For another, he cites the unusual behavior by the Federal Reserve during the current cycle.
Faced with runaway inflation at its highest rate in more than 40 years, the Fed started raising rates gradually in March 2022, then much more aggressively by the middle part of that year — after the inflation peak of June 2022. That’s counter to the way central banks have operated in the past. Historically, the Fed has raised rates early in the inflation cycle then started cutting later.
“They waited until inflation peaked, and then they tightened all the way down. So the Fed’s been completely out of synch,” Paulsen said.
But the rate dynamics have helped companies escape what usually happens in an inverted curve.
One reason why inverted curves can contribute to a recession as well as signal that one is occurring is that they make shorter-term money more expensive. That’s hard on banks, for instance, that borrow short and lend long. With an inverted curve hitting their net interest margins, banks may opt to lend less, causing a pullback in consumer spending that can lead to recession.
But companies this time around were able to lock in at low long-term rates before the central bank starting hiking, providing a buffer against the higher short-term rates.
However, the trend raises the stakes for the Fed, as much of that financing is about to come due.
Companies needing to roll over their debt could face a much harder time if the prevailing high rates stay in effect. This could provide something of a self-fulfilling prophecy for the yield curve. The Fed has been on hold for a year, with its benchmark rate at a 23-year high.
“So it could very well be the case that the curve’s been lying to us up until now. But it could decide to start telling the truth here pretty soon,” said Zandi, the Moody’s economist. “It makes me really uncomfortable that the curve is inverted. This is one more reason why the Fed should be lowering interest rates. They’re taking a chance here.”

Don’t miss these insights from CNBC PRO More