Weekly Economic Snapshot: Strong Economy But Worried Consumers

Economic Overview - The U.S. economy showed a stronger than expected rebound in Q2 with a real GDP increase of 3.8% annualized, contrasting with a 0.6% contraction in Q1 and surpassing the 3.3% forecast [3] - Consumer spending was a primary driver of this growth, although it was partially offset by declines in business investment and exports [3] Inflation Data - The Core PCE Price Index rose 2.9% year-over-year in August, consistent with forecasts, while the headline index increased by 2.7%, marking its highest level since April 2024 [2] - Monthly core prices rose by 0.2% and headline prices by 0.3%, both in line with expectations [2] Consumer Sentiment - The University of Michigan Consumer Sentiment Index fell to 55.1 in September, a decline of over 5.0% and below the forecast of 55.4, indicating growing economic concerns among households [4][5] - The deterioration in sentiment was broad-based, affecting nearly all demographic groups, except for consumers with large stock holdings [5] Market Reactions - The S&P 500 experienced its first weekly loss in almost a month, down 0.3%, despite reaching a new record high earlier in the week [7] - The 10-year Treasury yield ended the week at 4.20%, while the 2-year note finished at 3.63% [7] Federal Reserve Outlook - The CME FedWatch Tool indicates a 90% likelihood of a 25 basis point rate cut at the next Federal Reserve meeting, with additional cuts anticipated in December and 2026 [8] Upcoming Economic Data - The upcoming week will feature key labor market data, including the BLS Employment Report, ADP Employment Report, and JOLTS Report, alongside ISM Manufacturing and Services PMIs [10]