The growth scare that rocked the market in early August looks premature after the release of new data on gross domestic product and jobless claims.

Growth was stronger in the second quarter, revised up to 3.0%, than the first estimate, driven largely by a sharp upward revision to consumer spending, according to data released Thursday by the Bureau of Economic Analysis.

While we might expect a slowdown in private investment in the third quarter, consumer spending should continue to be the main driver of growth.

Another important metric is final sales to private domestic purchasers, which strips out volatile components like inventories, trade and government spending. Final sales were also revised up, to 2.9% from 2.6%.

We believe the disappointing July jobs report was most likely just a blip because of seasonal factors and weather-related issues, given how strong other economic data has been.

Initial jobless claims, a key proxy for layoffs, continued to stabilize last week at 231,000 after surging in July, confirming our forecast that there should be a labor market rebound in August.

When assessing the health of the labor market, it is important not only to look at job gains but also to take into account layoffs.

We are more confident in our call that we should see about 175,000 net payroll jobs gained in August, much higher than July, while the unemployment rate should inch down to 4.2%.

If that turns out to be correct, any call for an emergency 50 basis-point cut in September by the Federal Reserve should be off the table.

The takeaway

With price stability essentially achieved, a well-performing labor market should continue to be a significant tailwind for growth, especially for consumer spending, in the last two quarters of the year. This is not an economy at risk of an imminent end to the current business cycle.

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This article was written by Tuan Nguyen and originally appeared on 2024-08-29. Reprinted with permission from RSM US LLP.
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