The Gap Between How Consumers Feel and What They Spend

If you only read the sentiment surveys, you would think the American consumer is in serious trouble. The University of Michigan’s index has spent months at levels normally seen in recessions. But the data on what people actually do tells a different story. Spending is growing, earnings are beating estimates, and jobless claims are the lowest in over five decades. This week we walk through both sets of numbers and take a closer look at what the Michigan survey measures, and what it doesn’t.

US Economy

For the first time in over five decades, the number of Americans applying for jobless benefits hit a low of 187,000 last week. That total is the fewest number of applications since September 6, 1969. Furthermore, it falls below the forecasted 215,000. This is good news on America’s economic front, despite the continued high price of gas, which has been driving up inflation. As High Frequency Training chief economist Carl Weinberg noted, “The economic crisis caused by the energy supply shock is not over yet. But the labor market has yet to show any sign of wear and tear from the surge in oil prices.” This data is also consistent with June’s unemployment number, which came in lower than expected at 4.2%.

The S&P Global manufacturing PMI softened, as output growth cooled and new orders weakened. Services activity surged, although the momentum was boosted by temporary factors such as the FIFA World Cup and USA 250 celebrations.

Businesses raised selling prices at the fastest pace since August 2022. New home sales rebounded in June as builder discounts supported demand, but the level remained subdued. Inventories remained elevated, keeping price pressure on builders.

AI is completing roughly one-third of entry-level tasks, but employers increasingly see junior roles evolving rather than disappearing, with new hiring focused on AI fluency, judgment, creativity, and faster on-the-job training.

Source: @financialtimes   Read full article

This chart shows the cost of dental implants by state.

Durable goods orders eked out a small gain that meaningfully underperformed consensus expectations due to volatility in defense and commercial aircraft orders. Further stripping out defense, core capital goods orders posted a solid expansion, signaling robust underlying momentum for business investment.

Here is a look at nominal and real capital goods orders (levels).

Core capital goods shipments remained strong.

Q2 GDP expanded at a 1.5% annualized rate, below consensus estimates, as heavy drags from net trade and inventory destocking masked robust underlying demand.

While the headline figure has weakened, the underlying details remain strong. Real final sales to domestic purchasers, which remove volatile inventories and net trade, are solid at 3.2%. Excluding government spending, real final sales to private domestic purchasers are forecast at 3.5%. Looking beyond Q2, the Atlanta Fed’s initial Q3 GDPNow reading is 5%.

The goods trade deficit narrowed in June as imports declined faster than exports. Despite the narrowing, net trade remains a major headwind for Q2 GDP growth, projected to subtract approximately one percentage point due to earlier surges in capital goods imports linked to AI investment.

US Stock Market

Consensus estimates for Q3 have continued to be revised upward, in contrast to the typical pattern of cuts to forward estimates during the earnings season.  Let’s begin with our weekly updates on earnings and valuation.

Analysts continue to raise EPS forecasts for the rest of 2026.

Source: Yardeni Research

Growth in forward EPS has been accelerating.

Both short- and long-term consensus earnings growth rates have surged.

This chart shows the rolling 12-month foreign purchases of US equities.

The PEG ratio for the S&P 500 has fallen to secularly low levels.

Semiconductors are expected to have contributed to half of the S&P 500’s Q2 earnings growth.

Quarterly share buybacks for the hyperscalers continued to plunge.

Source: Bloomberg via @KevRGordon

CME Group will launch cash-settled single-stock futures on more than 50 major US companies today, ranging from Nvidia to SpaceX.

Source: @markets   Read full article

Q2 earnings growth is tracking at the highest level since 2021.

Source: FactSet   Read full article

How much of the stock market do households own?

Tariffs

The Trump administration extended a baseline tariff regime, imposing duties of 10% to 12.5% on imports from nearly 60 countries and the EU under Section 301.

Source: @bpolitics   Read full article

The Fed

Coming out of its latest policy meeting today, the Federal Reserve decided to hold interest rates steady. The federal-funds rate remains between 3.5% and 3.75%… the same it has been since December.

This came as little surprise to the market. About an hour before the Fed’s policy announcement, futures traders had priced in a 33% chance that rates would rise today, though they put roughly 80% odds of a rate increase in September.

Still, there’s a little more to the story…

On the one hand, today’s vote means new Fed Chair Kevin Warsh hasn’t cut rates… which President Donald Trump has wanted for years.

But it also means that when Warsh looks at inflation today, he doesn’t see a problem that justifies an immediate rate hike. Oil prices – the main driver of high(er) inflation numbers in the last few months – are lower than they were in the spring, though still volatile.

The Fed’s post-meeting statement suggested the bank thinks inflation concerns are a short-term issue. Inflation is running above the Fed’s 2% target “in part reflecting supply shocks that have driven price increases in certain sectors, including energy,” the statement said.

The vote to hold rates steady was not unanimous, though, with three Fed policy board members voting for a 25-basis-point rate hike.

Great Quotes

“Pessimists sound smart.  Optimists make money.” – NYSE saying

Picture of the Week

Keystone Arch, Big Sur California

All content is the opinion of Brian Decker