Nationwide Economic & Market Commentary

August 7, 2026 | Kathy Bostjancic

July unemployment soft, though private sector gains stayed steady

• The July employment report surprised with soft reading across the board, including a decline in total employment that followed large downward revisions in the prior months, slowing wage growth, and a continued drop in the labor force participation rate that allowed the unemployment rate to fall for the wrong reasons.  Even healthcare jobs which have been the stalwart driver of employment gains slowed to a below-trend increase last month.
• That said, a large decline in local education jobs skewed the overall employment count downward and this likely reflects some seasonal adjustment issues as teachers typically roll off the payrolls in the summer.
• The private sector job gains continue to be steadily positive, reflected of a still solid labor market and overall economic activity. While private services job expansion slowed in July, the goods sector picked up the slack led by buoyant gains in construction jobs that are likely related to the AI data center build out.
• The soft labor market report should lower market expectations for a Fed rate hike in the coming months, but the inflation reports will be the key focus for Fed officials. If inflation prints run hot for the next few months, then odds of a rate hike increase, and conversely an easing in inflation pressures can give the Fed some breathing room to hold steady especially since the labor market is far from overheating.

July 30, 2026 | Kathy Bostjancic

Good news from Q2 GDP, June spending and inflation

• The softish headline Q2 GDP reading (+1.5%) masks strength in the core private domestic sector that expanded by a vibrant 3.9%. This underscores the resiliency of the economy in the face of the energy price shock emanating from the war in the Middle East. As anticipated, strong consumer spending (+3.2%) and ebullient AI capital expenditures drove the gain. Consumers benefited from a healthy labor market, tax refunds and reductions, positive wealth effects from the equity market and any shortfall after that due to higher energy prices was bridged by a pullback in savings.
• Weighing on the overall GDP reading, as expected, was a large drag from net exports (detracted 1 full percentage point) but even this was a sign of strong US domestic demand as import growth outpaced export gains, and inventories were sharply drawn down (detracting 0.7 percentage points).
• The strong June real consumer spending advance (+0.4%) provides a buoyant handoff for household spending at the start of Q3. The renewed rise in energy prices presents a headwind for household budgets, but if the labor market stays strong and income gains solid, we anticipate consumers can continue to ride out the energy shock and maintain solid spending.
• On the important inflation front, headline and core PCE inflation eased in June, as expected, and this provided a beneficial reprieve to households. That said, the renewed rise in energy prices means households must again deal with higher prices at the gas pump. Similarly, the cooling in inflation pressures in June allowed the less hawkish members of the Federal Open Market Committee to argue for no change in the policy rate at yesterday’s policy meeting, but it could lead to a more hawkish call for higher rates in the coming months.
• The continued very low jobless claims readings show there is no deterioration in the labor market and the hiring rate remains incredibly low – this is a sign of a strong domestic economy and supports consumer spending despite higher energy prices.