Economic activity remains solid, with the first estimate of last quarter’s GDP growth in line with strong activity. The most positive contributions to aggregate growth came from consumer spending – which accelerated to 4% growth (prior 3.8%), as well as government spending (+3.3%). This is in line with lower federal personal taxes and higher federal government outlays.
More negatively, the effects of trade policy become visible, with large swings in net exports (subtracting 1.8% from growth) and a positive impact from inventories, which added 2.2ppts to total growth. This is likely due to frontloading of imports (up 9.1%) prior to new tariff announcements.
Overall, we expect growth to remain strong, with the positive effects from easier fiscal policy helping short-term growth. As to inflation, we note that the core PCE index, which excludes prices for food and energy items, increased moderately, close to the Fed target of 2% – core PCE edged up one basis point to 1.97%. This is the fifth consecutive month that inflation is at the Fed’s inflation target.
Gero Jung – Chief Economist – Mirabaud AM