Economic Update: Week of August 3, 2026

NEW THIS WEEK

Growth

The U.S. economy grew 1.5% SAAR in 2Q26 as a widening trade deficit and weaker government spending were offset by accelerating consumer spending and continued strength in business fixed investment. Consumer spending rose 3.2% while business fixed investment rose 8.4% as spending on equipment rose again due to the AI buildout. Net exports removed 1% from growth as imports jumped 11.5%. Government spending fell 0.8% due to weaker nondefense spending. Real final sales to private domestic purchasers rose 3.9% after a 1.7% gain in 1Q26, suggesting that underlying economic momentum held strong with temporary fiscal support from tax refunds, but could fade later in the year.

Jobs

The June Jobs Report was weaker, reversing the trend of the past three months. Payrolls rose just +57k, below the 100k consensus, and revisions stripped 74k out of the prior two months. The three-month average falls to +111k from +164k—still solid against a breakeven pace of roughly 50k, but a more normal pace of expansion. The unemployment rate fell to 4.2% from 4.3% due to a shrinking labor force. Participation dropped to 61.5% from 61.8%, and the labor force shrank by 720k. Put together, this is a labor market that is tight, not strong. Corporate America isn’t adding headcount with urgency, but it isn’t cutting either, with layoffs and claims still near the low end of their historical range. We still expect the unemployment rate to drift toward 4% by year-end, driven primarily by weak labor supply growth.

NEW THIS WEEK

Profits

The second quarter earnings season has been strong, driven by AI and energy. Consensus is calling for S&P 500 EPS to grow by about 38% y/y. If realized, it would mark a second consecutive quarter of 20%+ earnings growth. Importantly, the numbers are being skewed by large paper gains from the hyperscalers’ investments in private AI companies. Excluding those, earnings growth would still be strong at 19%. Growth remains concentrated, but has followed capex dollars out of the hyperscalers and into the semiconductor industry, which is driving over half the index level growth.

Inflation

June CPI cooled more than expected thanks to a sharp decline in energy prices and a flat growth in the core components. Headline inflation fell 0.4% m/m, bringing the y/y rate down to 3.5% from 4.2% in May. Within core, shelter prices grew slower than expected at 0.1% m/m, and auto insurance, which was one of the drivers of inflation a year ago, extended a decline in prices, keeping the m/m core prices unchanged and decelerating the y/y core inflation to 2.6%.

NEW THIS WEEK

Rates

• At the July FOMC meeting, the committee held the federal funds rate at 3.50% to 3.75%. However, three officials dissented in favor of raising rates, signaling the growing divide within the Fed about the direction of inflation. Consistent with the committee’s shift toward less forward guidance, the July statement was nearly identical to June. While our base case remains the Fed will remain on hold this year, we acknowledge a hike as a possibility depending on how the data evolves. However, given the structures and biases, it is unlikely to turn in to a prolonged hiking cycle.

Risks

• An extended conflict in the Middle East could weigh on growth and pressure inflation higher.
• Elevated geopolitical tensions could spark bouts of volatility, particularly in expensive markets.

Investment Themes

• Solid fundamentals should allow U.S. markets to continue to grind higher.
• Fiscal stimulus, dollar weakness and regional catalysts should support strong international performance.
• Private markets can offer investors more ways to access the AI theme.

This weekly update provides a snapshot of changes in the economy and markets and their implications for investors.

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Originally Posted August 3, 2026 – Economic Update

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