US Economic Growth Slows, PCE Index Falls for First Time Since 2020

Significant macroeconomic data was published on Thursday in the USA: economic growth was weaker than expected in the second quarter, although growth drivers were mostly stable. At the same time, inflation in June remained well above the Fed's target, complicating the bank's interest rate policy implementation.

GDP rose by only 1.5% in the quarter between April and June, according to data from the Department of Labor. Analysts surveyed by Dow Jones predicted growth of 1.8%, following a figure of 2.1% in the first quarter. The slowdown was mainly due to the expansion of the trade deficit, against the backdrop of an increase in imports of chips, computer equipment, and products related to AI infrastructure investments. On the other hand, private consumption strengthened to a pace of 3.2% and business investments rose by 8.4% — data indicating that domestic demand remains strong.

A separate report showed that the Personal Consumption Expenditures (PCE) index, which is a key predictive indicator for the Fed regarding inflation, fell by 0.1% in June, placing the annual inflation rate at 3.7%. This is the first time this index has recorded a decline since the outbreak of the coronavirus pandemic in 2020. These figures were identical to forecasts. Excluding food and energy items, the index recorded a monthly increase of 0.1% and an annual rate of 3.3%, compared to forecasts of 0.2% and 3.3% respectively.

The data comes a day after the Fed voted by a majority of nine to three in favor of keeping its interest rate at 3.5%-3.75%. Inflation has been at the center of attention for Fed policymakers after labor market data stabilized this year, with the three votes against coming from regional governors who expressed concern over rising prices and the Fed's inability to address it.