Weekly Update 08/29/2025: US Economy Grows at an Upwardly Revised 3.3% Rate in Second Quarter on Strong Business Investment
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Domestic Economic News
The US economy expanded in the second quarter at a slightly faster pace than initially estimated on a pickup in business investment and an outsized boost from trade. Inflation-adjusted gross domestic product, which measures the value of goods and services produced in the US, increased at a 3.3% annualized pace, the second estimate from the Bureau of Economic Analysis showed Thursday. That compared with an initially reported 3% increase. Business investment expanded at a 5.7% pace after surging in the first quarter. The latest figure was stronger than the 1.9% initially reported and reflected an upward revision to investment in transportation equipment and the strongest advance in intellectual property products in four years. The turnaround in GDP followed a first-quarter contraction that was the first since 2022 as companies raced to import goods ahead of tariff hikes. Looking forward, the economy is projected to expand at a modest pace as consumers and businesses adjust to President Donald Trump’s trade policy. The government’s other main gauge of economic activity — gross domestic income — surged 4.8% after a 0.2% annualized advance in the first quarter. Whereas GDP measures spending on goods and services, GDI measures income generated and costs incurred from producing those same goods and services. The dollar remained lower and two-year Treasury yields edged higher after the GDP data. Traders still largely expect the Federal Reserve to cut interest rates next month.
Sales of new US homes exceeded forecasts in July after an upward revision to the prior month, as prices eased and heavy incentives enticed more buyers off the fence. Contract signings on new single-family homes ticked down to a 652,000 annualized rate, with the strongest demand in the West, according to a government report issued Monday. The median estimate in a Bloomberg survey of economists was a 630,000 pace. While sales topped projections, the new-home market has grown dependent on price cuts and incentives to entice customers amid high mortgage rates. The share of builders who reported using sales incentives reached a post-pandemic high of 66% this month as they seek to unload an inventory of completed homes at the highest level since 2009. That glut will continue to give builders reason to hold back on future groundbreaking, said Stephen Stanley, chief economist at Santander Capital Markets. “The slowdown in construction activity is starting to help at the margin, as the number of new homes for sale that are under construction dropped,” Stanley said in a note. “So, this is hopeful but until it translates to a drop in the number of completed new homes for sale, builders are still likely to regard cutting construction as an urgent priority.” Here is what Bloomberg Economics had to say: “Home builders are bloated with inventories, a growing share of which are completed units. We expect inventories and elevated mortgage rates to weigh on housing-market activity and home prices in the months ahead.” — Stuart Paul. Entry-level builder DR Horton Inc. reported on its latest earnings call that it was offering heavy subsidies to bring down some customers’ mortgage rates to 3.99% as more buyers opt for loans backed by the Federal Housing Administration, which often accepts customers with lower credit scores. More generally, overall housing demand may start to stabilize as potential homebuyers find a little more relief on financing costs. Mortgage rates in the week ended Aug. 15 were near the lowest level since April. The government’s report showed the median sales price of a new home decreased nearly 6% in July from a year earlier to $403,800, the lowest for July since 2021. Prices have fallen on an annual basis every month this year except one. For a fourth straight month, the median selling price of a new home was less than that of an existing property. Even with lower prices, it’s still taking some time for builders to clear through inventory. The supply of new homes for sale, including those not yet started or under construction, decreased slightly to 499,000 units, still near the highest since 2007. By region, sales in the West increased 11.7%, while they dropped in the South and Midwest. New-home sales are seen as a more timely measurement than purchases of existing homes, which are calculated when contracts close. However, the data are volatile on a monthly basis.
US pending sales of existing homes fell for a second month in July as potential buyers balked at still-elevated prices and borrowing costs, consistent with a sluggish housing market. An index of contract signings slipped 0.4% last month to 71.7, around where it’s lingered for much of the year, according to National Association of Realtors data released Thursday. The median estimate of economists surveyed by Bloomberg projected a 0.2% drop in July. Buyers have seen modest relief recently as rates slipped to a four-month low of 6.67% earlier in August, and have stayed close to that in recent weeks. Financing costs, however, remain double what they were at year-end 2021, a time when many homeowners refinanced their loans to take advantage of lower rates. “Even with modest improvements in mortgage rates, housing affordability, and inventory, buyers still remain hesitant,” NAR Chief Economist Lawrence Yun said in a statement. Without a sustained drop in mortgage rates and more favorable asking prices, previously owned home sales will be hard-pressed to move much beyond 4 million this year — a pace they’ve been stuck at for the past two years. Meantime, the pace of price growth has at least moderated nationwide, rising by just 0.2% in July from a year ago. Prices have even fallen in once-hot housing markets in the West and South, where inventory has built up the most. “Rising mortgage applications for home purchase are an early indicator of more serious buyers in the marketplace, though many have not yet committed to a pending contract,” Yun said. Contract signings in the South, the nation’s biggest home-selling region, eased slightly. Pending sales also fell in the Midwest and Northeast, while climbing 3.7% in the West. Pending-homes sales tend to be a leading indicator for previously owned homes, as houses typically go under contract a month or two before they’re sold.
US consumer confidence fell slightly in August as Americans worried more about their prospects of finding a job. The Conference Board’s gauge of sentiment decreased 1.3 points to 97.4 after an upward revision to the prior month, data out Tuesday showed. The median estimate in a Bloomberg survey of economists called for a reading of 96.5. A measure of expectations for the next six months declined in August, while present conditions decreased to the lowest since April. Consumer confidence continues to hover well below levels seen prior to the pandemic. The recent labor-market slowdown has added to economic concerns stemming from President Donald Trump’s tariffs. Job growth and wage gains have significantly slowed, and it’s become increasingly difficult for unemployed Americans to find a new role. The share of consumers that said jobs were hard to get rose for a second month to the highest since 2021. The share saying jobs were plentiful was little changed. The difference between these two — a metric closely followed by economists to gauge the job market — fell slightly, continuing a steady decline over the last three years. Deterioration in the labor market has become a focal point for Federal Reserve officials as they determine when to resume cutting interest rates. In a speech at the Fed’s annual Jackson Hole conference last week, Chair Jerome Powell left the door open for a potential interest rate cut at the central bank’s next policy meeting in September due to rising risks to the job market.
The share of consumers expecting higher interest rates in the year ahead increased, while fewer anticipated lower rates, according to the Conference Board. Trump’s ever-changing trade policies have weighed on consumer confidence over the last few months as they anticipate higher prices. Consumers referenced those concerns in write-in responses to the survey, as well as prices for food and groceries. Inflation expectations moved higher. The report showed buying plans for big-ticket items like cars, refrigerators and washing machines rose while vacation plans were down. While consumers were negative on the job market, they were generally more upbeat regarding business conditions.
US orders for business equipment increased in July by more than projected, suggesting companies are moving forward on investment plans as uncertainty around trade and tax policy gradually diminishes. The value of core capital goods orders, a proxy for investment in equipment that excludes aircraft and military hardware, increased 1.1% last month after a revised 0.6% decrease in June, Commerce Department figures showed Tuesday. The gain exceeded all forecasts in a Bloomberg survey of economists. Bookings for all durable goods — items meant to last at least three years and including orders for commercial aircraft and military equipment — fell 2.8%. Earlier this month, Boeing Co. reported fewer orders in July than in June. Despite the gain, economists expect business investment to be soft for the remainder of the year before picking up in 2026 as companies take advantage of tax provisions after President Donald Trump signed the One Big Beautiful Bill. In the first half of this year, companies were largely cautious about capital spending because of erratic tariff announcements and concerns about demand.
In addition to a Boeing-related surge in business investment in the first quarter, companies ramped up spending on equipment to speed the use of artificial intelligence. AI and similar capital expenditures have the potential of boosting productivity for companies aiming to offset higher costs, including import duties. “Despite overwhelming anecdotal commentary suggesting that many companies put their investment projects on hold as they sought to navigate the choppy waters caused by policy-related uncertainty, the data show that firms have in fact continued to invest at a reasonably healthy pace,” Stephen Stanley, chief economist at Santander Capital Markets, said in a note. The durables report showed orders for electrical equipment, computers, machinery and metals increased last month. Bookings for motor vehicles also picked up. Non-defense capital goods shipments including aircraft, which feed directly into the equipment investment portion of the gross domestic product report, rose 3.3%. Rather than orders, which can be canceled, the government uses data on shipments as an input to GDP. The government’s report showed core capital goods shipments, a less volatile metric that excludes planes and military hardware, rose 0.7% after an upwardly revised gain in the previous month. Economists prefer the core equipment shipments figure to gauge underlying capital investment since there are extremely long times between ordering aircraft and military hardware and the actual shipment taking place. Before the durables report, the Atlanta Fed’s GDPNow forecast anticipated a marginal increase in business equipment outlays for the third quarter. Spending on equipment contributed 0.26 percentage point in the second quarter and 1.11 points in the first. The Commerce Department’s report showed bookings for commercial aircraft, which are volatile from month to month, declined for a second month following a massive increase in May. Boeing said it received 31 orders last month, down from 116 in June and 303 in May.
Applications for US unemployment benefits edged down last week, suggesting employers are holding onto current workers amid economic uncertainty. Initial claims decreased by 5,000 to 229,000 in the week ended Aug. 23. The median forecast in a Bloomberg survey of economists called for 230,000 applications. Continuing claims, a proxy for the number of people receiving benefits, also fell, to 1.95 million in the previous week, according to Labor Department data released Thursday.
Interest Rate Insight and the Fed
The U.S. economy is losing pace, according to a monthly index released Monday, adding to the likelihood that policymakers will move to lower interest rates next month. The Chicago Fed's National Activity Index inched down to minus 0.19 in July from a downwardly revised minus 0.18 in June. A reading below zero suggests growth was slower than the long-term average. Employment-related indicators remained negative on the index, a fresh sign of fragility in the U.S. labor market. That weakness is one of the main motives driving a push toward a reduction in interest rates at next month's Fed policy meeting. The central bank's chair, Jerome Powell, last week noted the underlying lackluster trend in the country's jobs market. That "may warrant adjusting our policy stance," Powell said in a speech at the Jackson Hole economics meeting in Wyoming on Friday. Most investors now expect the Fed to lower its key borrowing rate by a quarter point in September, according to LSEG Refinitiv data. This would be the first rate-cut since last year. Two of the other categories gauged by the Chicago Fed's index also were negative in July, while one, personal consumption and housing, made a neutral contribution to the overall reading, highlighting the broad lack of momentum in the economy. The index's three-month moving average rose to minus 0.18 from minus 0.26 in June, while the diffusion index--which captures how much the monthly change is spread among the individual indicators over three months--rose to minus 0.31 from minus 0.40 in June. Periods of economic expansion have historically been associated with values of the CFNAI diffusion index above minus 0.35.
US consumer spending rose in July by the most in four months, indicating resilient demand in the face of stubborn inflation. Inflation-adjusted consumer spending rose 0.3%, according to Bureau of Economic Analysis data out Friday. The advance was boosted by income growth and driven by goods. The so-called core personal consumption expenditures price index, which excludes food and energy items and is favored by the Federal Reserve, rose 0.3% from June. From the prior year, the gauge picked up to 2.9%, the most since February. The figures were broadly in-line with expectations. A pickup in services prices seen in this report could fan concerns about the persistence of inflation, as it adds to expectations that President Donald Trump’s tariffs will filter through to goods prices in the coming months. For now, Americans continue to spend, but it’s unclear how long that momentum will last amid a high cost of living and a weakening job market. Traders still expect the Fed to cut interest rates when they gather Sept. 16-17. Speaking at the Fed’s annual Jackson Hole conference last week, Chair Jerome Powell carefully opened the door to a rate cut next month amid rising risks to the job market, though he noted the effects of tariffs on prices are “now clearly visible.” Before that gathering, however, policymakers will receive additional reports on inflation and the labor market.
The pickup in inflation was driven by higher costs for services, which rose by the most since February. That included a jump in portfolio management fees, reflecting a months-long stock market rally. Recreational services costs including live sports and entertainment also increased. A closely watched metric of services inflation that excludes energy and housing rose 0.4%, the most in five months. Goods costs, meanwhile, declined. In an effort to shield American consumers, some firms rushed to get goods into the country before tariffs kicked in, while others diversified their supply chains or chose to sacrifice their own margins. But with most levies now in place, many companies have stressed the need to pass more of those extra costs on to shoppers. The acceleration in spending was in large part due to merchandise purchases, particularly for durable goods like cars, household furniture and sporting equipment. Separate figures from the Commerce Department on Friday showed the merchandise trade deficit widened in July to the largest in four months. Imports jumped by the most since the start of the year. While the labor market — the main engine behind household demand — has shifted into a lower gear, promotions like Amazon.com Inc.’s Prime Day offered a boost to goods spending.
Impactful International News
Indian exporters hit by President Donald Trump’s 50% tariff say they can’t survive without government support, as calls for relief grow. The tariffs — which took effect Wednesday in Washington — doubled the previous 25% duty and are now among the highest in Asia, leaving Indian goods uncompetitive in the US market. Industry groups are pushing for stimulus that includes cheaper loans, wage subsidies and tax breaks to soften the blow. Without such relief, they warn, production will stall, workers could be laid off and India risks ceding its hard-won market share to rivals. “Those with 100% exports to the US markets have laid off laborers in a big way,” said S C Ralhan, President of the Federation of Indian Export Organizations. “The government needs to come to our rescue immediately.” The US is India’s biggest export destination. In 2024, the South Asian nation sent $87.4 billion worth of goods there, about a fifth of the country’s total merchandise exports in the year through March 2025. Buyers are already shifting orders to Bangladesh, Vietnam and Cambodia, where tariffs hover around 20%, according to Israr Ahmed, managing director of Farida Shoes Pvt. He estimates footwear exports to America could plunge as much as 90% this year. For US companies trying to keep costs down, India’s new price disadvantage is simply too steep. “50% tariffs are not workable for the clients,” Ahmed said, adding that buyers have already asked Indian exporters to hand over product specifications to alternative suppliers in Southeast Asia. Apparel makers are estimating a hit of about $3 billion, according to Sudhir Sekhri, chairman of the Apparel Export Promotion Council. To cope, Indian firms are ramping up production in overseas facilities like Bangladesh and Cambodia, shifting work abroad to keep customers while avoiding the steep tariffs.
France’s latest bout of political instability is set to endanger a nascent economic recovery as companies hold off on hiring and investment. With lawmakers preparing to topple the government in a Sept. 8 confidence vote called by Prime Minister Francois Bayrou, company executives are likely to want to see how any new administration gathers support and addresses the need to narrow the euro area’s largest budget deficit. “Some French companies will be inclined to wait for the budget to be passed before going ahead with recruitment plans or investment decisions,” said Oddo BHF strategist Thomas Zlowodzki. “With all the uncertainty about tariffs amid a sluggish economy, the visibility was already quite blurred – now it’s become worse.” Economic growth figures already masked persistent weakness in investment by non-financial companies that has shrunk or failed to grow every quarter since President Emmanuel Macron’s snap parliamentary election last July. Should that slump again, it would cut into output, which has expanded more than expected in recent months largely thanks to increased inventories. Corporate France also faces the threat of rising borrowing costs. While companies with limited exposure to the domestic economy such as Schneider Electric SE and Elis SA saw strong demand for their debt issues this week, rising sovereign yields will ultimately have an impact. The nation’s 10-year yields are now among the highest- yielding in the euro zone at 3.5% and have risen by more than 30 basis points since late May. That’s far from the sudden market shift that toppled Liz Truss’s government in the UK a few years ago, but enough that some asset managers have brought up her name.
German inflation quickened more than anticipated to surpass 2%, capping a mixed round of price data from the region’s top economies that’s unlikely to persuade the European Central Bank to change interest rates next month. August’s reading came in at 2.1% — up from 1.8% in July, the statistics agency said Friday, citing rising food costs and a smaller drop in energy prices. That’s above the median forecast in a Bloomberg poll of economists, which predicted an uptick to 2%. Figures earlier in the day all fell just short of expectations, with France remaining well below the ECB’s goal at 0.8%, Italy closer at 1.7% and Spain above it at 2.7%. A report next week for the 20-nation currency bloc as a whole is widely expected to show a modest acceleration. Bloomberg Economics sees an uptick to 2.1% from 2%. That leaves the ECB in a comfortable position. Most officials at last month’s rate meeting described inflation risks as “broadly balanced” and spoke of “resilience” in Europe’s economy — despite the headwinds from US tariffs and Russia’s war in Ukraine.
Officials have since signaled that they’ll again leave borrowing costs unchanged at 2% in September. Investors are no longer sure there’ll be any more cuts this year, though economists still see one final move in December. The continent’s consumers are demonstrating little in the way of inflation concerns, with an ECB poll published Friday revealing that expectations for the next 12 months held steady in July and only edged up slightly for three years ahead. In Germany, the Bundesbank said last week that it expects inflation to tick up past 2% in the next few months — somewhat higher than it forecast in June. The increase can largely be blamed on base effects and will probably be “temporary,” it said, stressing that “due to geopolitical factors the outlook remains highly uncertain.”
Company Events
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