Q2 GDP Increased Less Than Expected

Pre-market futures are building back a bit from Wednesday’s carnage following the latest press conference from Fed Chair Kevin Warsh, which itself followed the fifth-straight no-move on interest rates from 3.50-3.75%. Warsh spoke for nearly an hour without giving any new insights on the latest Fed decision, despite three of the 12 voting members electing to raise interest rates by 25 basis points (bps).

Currently, the Dow is +135 points, the S&P 500 is +26 and the Nasdaq +289 points. Bond yields saw the 10-year move higher yesterday afternoon while the 2-year dwindled; this morning, we remain with a 40+ bps spread between the two: +4.68% on the 10-year and +4.25% on the 2-year. Oil prices, despite Middle Eastern hostilities spreading to Iraq with new airstrikes from the U.S. and Saudi Arabia, are staying relatively well-behaved: +84 per barrel (/bbl) on WTI and $90/bbl.

Personal Consumption Expenditures Mostly In-Line

This morning, June Personal Consumption Expenditures (PCE) are out — overall fairly in-line with expectations, but with a couple key deviations. Previous Fed Chair Jerome Powell often reiterated that PCE data was the preferred inflation print for the FOMC; we’re still in the dark whether Kevin Warsh agrees.

The first print on Q2 Gross Domestic Product (GDP) was a disappointment: +1.5% from +2.0% anticipated. This is down 60 bps from the final Q1 GDP read, and the lowest since Q4 2025’s +0.5%. Full-year GDP for 2025 reached +2.0%; thus far, we’re cooling off in 2026.

Personal Income for June came in -10bps from estimates — +0.2% versus +0.3%, following +0.7% in the May print, which was the strongest singe the Great Reopening five years ago. Personal Spending hit estimates directly at +0.3%, with the prior month revision ballooning up to +0.9%. While we don’t see anything careening out of control here, we generally like to see incomes a bit stronger than spending instead of vice-versa.

The PCE Index for June reached -0.1%, as expected. This is the lightest figure since the Covid-ridden April 2020, but follows the upwardly revised +0.5% the prior month. Year over year, +3.7% was also aligned with expectations, the lightest since March and -40 bps lower month over month. Core PCE month over month was +0.1%, down from the +0.2% projected, and +3.3% on core, down -10 bps from May.

Consumption jumped to +3.2% from +2.3% expected, the highest since Q3 ’25 (back when overall GDP was +4.4%). Pricing amped up to +6.2% — more than 200 bps higher than analysts were looking for. We haven’t seen this level of advanced pricing activity since Q2 ’22, ahead of 40-year highs in inflation rates. Much of this is in elevated oil prices, of course: core Pricing came in at +3.4%, 10 bps below estimates.

Keep in mind this data came at a time when the Memorandum of Understanding (MOU) was in full effect; oil prices were south of $70/bbl at the time. This is bound to change when we see PCE numbers next month, but perhaps even a more important metric will be whether spending and consumption continues to outpace income at June rates.

Weekly Jobless Claims Remain at Generational Lows

Initial Jobless Claims this morning came in at 197K — the second week in a row below 200K, which had been expected, and 9K higher than the upwardly revised 188K, which represents a low not seen since the Beatles’ White Album came out. Continuing Claims stayed below 1.8 million for a second-straight week: 1.782 million from 1.789 million the prior week.

These numbers are obviously very, very good. However, they don’t appear to correlate with the monthly job gains we see in our monthly reports. Clearly, fewer people are taking unemployment checks than they were a year ago, and other jobs data confirms layoffs and firings remain at low levels. But perhaps Weekly Jobless Claims aren’t telling the full story these days; how many Americans getting pink slips are simply turning to Uber (UBER) for a paycheck instead of claiming joblessness?

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