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Here’s what you need to know…

1. The US economy hasn’t been quite as strong as we thought.

2. Inflation has cooled significantly since the start of the year.

3. Corporate hiring slowed in August.

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S&P 500: 4,514.87
1Mo: -2% | 1Yr: +14% | 5Yr: +56%

The market drifted higher today as investors celebrated mediocre economic data updates, believing that means policymakers won't raise interest rates again next month.

The US economy didn’t grow as much this past spring as we thought. The Commerce Department revised its estimate of US economic growth from the second quarter down to 2.1% from 2.4%. [🤓] It's still an improvement from the 2.0% pace of growth in the first quarter and above what policymakers think is normal. Businesses invested less in equipment and cut back on their inventories, but consumers actually spent more than originally measured. Consumer spending is the most important, powering two-thirds of the economy.

Inflation cooled off a lot heading into summer. The Commerce Department also revised its personal consumption expenditures (PCE) price index lower, revealing living costs only rose by 2.5% on average, helped by declining gas prices. That’s down from 4.1% in the first three months of the year. Stripping out more volatile food and gas prices, policymakers’ preferred inflation gauge rose 3.7% for the second quarter, down from 4.9% at the start of the year.

Corporate hiring slowed in August. Payroll provider ADP reported private sector employment rose by only 177,000 jobs in August after increasing by 371,000 in July. The official jobs report from the Labor Department comes out Friday morning.

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What is GDP, and how do we track the economy?

Gross Domestic Product (GDP) is how we track how much stuff the economy is producing. The actual number (~$27 trillion) doesn't matter as much as the direction and magnitude. We track the growth rate of real GDP (inflation-adjusted) to know whether the economy is expanding or contracting from the previous quarter.

The reporting style can be a bit confusing. The main number you hear will be an annualized growth rate (+2.1%) of the quarter, representing how much the GDP would increase/decrease if the economy hypothetically grew at that rate for an entire year. It's different from how much our production increased/decreased quarter-to-quarter (+0.5%) and not representative of the growth/decline over the past year (+2.5%). Annualizing the past quarter’s change makes the backward-looking number a little more forward-looking.

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