The third quarter of the US economy is showing signs of “Goldilocks”

The US economy continues to show signs of steady growth as inflationary pressure calms down.

According to the latest S&P Global Flash US Comprehensive PMI, corporate activity in July grew at the fastest pace in the past 27 months.

The overall PMI, which covers both the service industry and the manufacturing industry, rose from 54.8 in June to 55 in July. Economists expected the index to drop to 54.2.

What is important is that corporate activity grew in parallel with the decline in the inflation rate. According to the S&P Global report, the average price of goods and services rose at the slowest pace since January and the second slowest pace since October 2020.

Chris Williamson, chief business economist at S&P Global Market Intelligence, stated in the announcement that “preliminary PMI values suggest a “Goldilocks' scenario” at the beginning of the third quarter, where the economy grows at a strong pace while inflation moderates.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said, “Wednesday's announcement is the latest version of a series of data that strengthens investors' confidence that the US Federal Reserve (Fed) will cut interest rates before the US economy deteriorates, and maintains a reputation that the Fed's interest rate hike cycle will “soft land.”

As of Wednesday morning, investors see a 100% chance that the Fed will cut interest rates in September, according to CME's FedWatch tool.

The rise in the composite index was driven by the service industry, which rose to 56, the highest in the past 28 months. Meanwhile, the manufacturing industry declined, reaching a 7-month low of 49.5.

If these indices exceed 50, the sector expands, and if it falls below 50, it indicates contraction.

“As the service industry becomes even stronger, there are concerns that growth bias will occur, such as the manufacturing industry turning to contraction again. “Part of the decline in production is linked to a shortage of personnel and may be temporary.

Broadly speaking, Williamson said it remains strong enough to show solid economic growth in the third quarter. Mr. Williamson pointed out that production volumes in the manufacturing and service industries are expanding at “the highest growth rate in the past 2 years for July.” Williamson pointed out that this indicates that the economic growth rate for the third quarter will be 2.5% per annum.

The first announcement of the second quarter gross domestic product (GDP) is scheduled for Thursday morning. Economists forecast the US economic growth rate for the second quarter at an annual rate of 2%.