GDP Signals US Economic Resilience Ahead of Inflation Day

US economic data spurs a rise in swap rates. Stronger than expected GDP and durable goods orders fueled an immediate 5-7bp climb in swap rates from intraday lows. The short end of the curve closed ~7bps higher while the long end was little changed. Meanwhile, equities opened higher on the strong prints, with the S&P 500 rising 0.40% and the DJIA and NASDAQ rallying ~0.60%. Markets are now eagerly awaiting tomorrow’s inflation data, set for release at 8:30 AM ET.

GDP revisions show stronger pandemic recovery. The Bureau of Economic Analysis (BEA) released their annual GDP revisions today, which showed that US GDP grew 5.5% from 2Q20 through 2023, 0.4% higher than the 5.1% figure previously published. The increase was largely attributed to higher consumer spending, which drove about two-thirds of the revision. Separately, figures showed GDP growth of 3% in 2Q24, in-line with the prior estimates and above surveyed expectations of a slight downward revision to 2.9%.

PCE is expected to show mixed inflationary progress. Following last week’s 50bp rate cut, the Fed emphasized its confidence that inflation is on track to hit the 2% long-term target. According to forecasts, tomorrow’s Personal Consumption Expenditures (PCE) slate is unlikely to shift inflation expectations drastically; core PCE is expected to rise 0.1% to 2.7% year-over-year and stay flat at 0.2% month-over-month. Meanwhile, both headline prints are expected to decline in August from July. While the labor market has become the Fed’s center of attention, higher-than-expected inflation could force the Fed to be less aggressive with rate cuts.