US Economy Grows By 2.1% In Q2, Lower-Than-Expected Initial Claims Signal Tight Job Market

Thursday’s economic data featured notable highlights: a 2.1% annualized growth rate for the U.S. economy in the second quarter of the year and a lower-than-expected increase in jobless claims from the prior week, which held close to a nine-month low.

Treasury yields continued to rise further, with the iShares 20+ Year Treasury Bond ETF TLT opening on a weaker note on Thursday, on track for the worst-performing month since April 2022.

Economic GDP Growth Holds At 2.1% In Q2

As per the third estimate released by the Bureau of Economic Analysis, the U.S. economy saw a 2.1% annualized growth rate in the second quarter of 2023. This figure remained in line with the second estimate but marked a slight dip from the upwardly revised 2.2% growth witnessed in the first quarter.

In this third assessment, reductions in consumer spending and federal government spending were somewhat offset by increases in nonresidential fixed investment, exports, private inventory investment, and residential fixed investment.

Within consumer spending, both services and goods saw downward adjustments, notably in household utilities (electric and gas), transportation services (specifically motor vehicle maintenance and repair), furnishings, durable household equipment, clothing, and footwear. Nonresidential fixed investment recorded an upswing, primarily driven by investment in structures.

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Export data revisions were predominantly driven by an upward adjustment in services, particularly in travel and transport services. Conversely, imports saw a decline primarily due to a downward revision in other business services, including professional and management consulting services.

The Personal Consumption Expenditures (PCE) price index remained stable with a 2.5% increase in Q2, consistent with the prior estimate. Excluding food and energy prices, the core PCE price index maintained its unchanged 3.7% increase.

Traders will now anxiously await the PCE data for August due on Friday, following a notable uptick in the consumer price index to 3.7%.

Weekly Jobless Claims Rise Less Than Predicted

Meanwhile, the Labor Department reported 204,000 new jobless claims for the week ending Sept. 23, marking a slight uptick from the previous week’s nine-month low of 202,000.

The marginal rise fell short of expectations, as economists had anticipated an increase to 215,000.

Continuing claims increased by 12,000, reaching 1,670,000, which was slightly below the market’s expected figure of 1,675,000, and holding near an eight-month low.

These statistics further confirms that the tightness in the U.S. job market continues to persist.

Nonetheless, traders are not foreseeing another interest rate increase by the Federal Reserve for the remainder of this year. According to market-implied probabilities, as indicated by the CME Group’s Fedwatch Tool, there is currently only a 22% likelihood of a rate hike in November and a 42% chance in December.

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