Outlook for Friday, July 25 through Friday, August 1

July 30's FOMC meeting and August 1's jobs report could rock markets

Friday, July 25:

Following May’s aircraft swollen monthly surge of 231%, the monthly change by durable goods orders probably switched direction from May’s 16.4% lift-off to June’s -11.0% return to reality. For January-May 2025, new orders received by US manufacturers advanced by 6.9% annually. However, after excluding a 120.7% annual surge by new orders for aircraft & parts, the remainder of new orders edged up by a meager 0.8% year-over-year during the first five months of 2025. Within that remainder, only the AI-driven 13.4% annual advance by new orders for “computers & related products” stands out.

Tuesday, July 29:

The June JOLTS report on job openings, hires, quits, and layoffs will be released on Tuesday, July 29. Also, on Tuesday, the Case Shiller home price index (HPI) for May and the Conference Board’s consumer confidence index for July will be released.

Home price index likely to soften …

The seasonally adjusted Case Shiller HPI probably fell for a third straight month in May. Before seasonal adjustment, May’s Case Shiller HPI likely rose by 2.8% yearly – down from April’s 3.4%. May’s median price of existing homes sold rose by 1.6% yearly – a bit under April’s 1.8% yearly rise. However, June’s median price of existing homes sold was up by 2.0% yearly.

In addition to a drop by the 10-year Treasury yield to less than 3.70%, or the 10-year yield around the time the federal funds rate was cut from its old high of 5.38% in September 2024, the restoration of sufficient affordability to housing will require lower home prices.

Housing is too expensive relative to household incomes …

Housing is too richly priced relative to household incomes. For the 12-months-ended March 2025, the market value of owner-occupied residential real estate approximated 386% of total wage & salary income. Not only was the 386% ratio of home values to wage & salary income well above its 317% average of 2017-2019, it also was not that far removed from its 396% record high of the 12-months-ended September 2006 that led to 2008-2009’s Great Recession.

Consumer confidence will still fall short of post-November 2024’s election high …

July’s consumer confidence index is likely to rise from June’s 93.0, but to a level well short of November 2024’s post-election-day high of 112.8 points. Consumer price inflation has slowed. However, consumers have yet to perceive a decline in a still generally burdensome cost of living. Also, the narrow scope of private-sector job gains implies June 2025’s 4.1% unemployment rate overstates the vitality of the US labor market. Americans yearn for signs of rejuvenated upward mobility.

Wednesday, July 30:

By year’s end Fed may assign greater weight to soft job market than to inflation …

On Wednesday, July 30, we get the FOMC’s rate decision, policy statement, and Jerome Powell’s press conference. A Fed rate cut on July 30 is highly unlike. Instead, the focus will be on what the policy statement and Powell’s presser imply regarding a possible rate cut at the Fed’s following meeting on September 18. As inferred from the CMEGroup’s FedWatch tool, fed funds futures recently assigned an implied probability of 62% to a September 18 rate cut to 4.13%. Moreover, the implied likelihood of fed funds ending 2025 no higher than 3.88% was 60%, with only 18% odds for fed funds ending the year no greater than 3.63% for three rate cuts.

By September 18, the Fed will have had two more readings on CPI inflation to help the FOMC ascertain whether inflation has been revitalized. The full impact of tariffs on price inflation may not be known until October’s CPI. A rise by the jobless rate to 4.3% by August 2025 and an average monthly increase by payrolls of fewer than 115,000 jobs per month for July and August would strengthen the case for a September rate cut.

Regarding the direction of Fed policy, a meaningful softening of the labor market that portends slower domestic spending may overrule stubbornly high inflation.

Also, on July 30, we get a look at June’s index for pending sales of existing homes, July’s ADP estimate for the monthly change in private-sector payrolls, and the initial estimate for second-quarter GDP.

Real consumer spending growth rises from Q1 2025’s 0.5% to Q2 2025’s expected 1.6%

After Q1 2025’s -0.5% annualized sequential drop mostly because of a nonrecurring surge by imports, Q2 2025's real GDP probably grew by 2.2% annualized from Q1 2025. The latter would be up from Q1 2025's 1.5% quarterly annualized rise by real GDP excluding both the trade deficit and a one-time ballooning of inventories. Of fundamental importance will be an expected increase by real consumer spending's annualized quarterly growth rate from Q1 2025's 0.5% to Q2 2025's prospective 1.6%.

Thursday, July 31:

PCE price index both with and without food and energy probably gained speed in June …

June’s report on personal income, personal consumption, and the PCE price index will be released on Thursday, July 31. June’s weak -0.1% monthly drop by the private-sector’s average weekly earnings favor a drop by May’s 0.4% monthly increase by wage & salary income. Real consumer spending probably rose by 0.2% monthly in June following May’s -0.3% drop. Both the PCE and core PCE price indices probably grew by 0.3% monthly in June. May showed monthly upticks of 0.1% for the PCE price index and of 0.2% for the core PCE price index.

From May to June, the annual rates of inflation could rise from 2.3% to 2.5% for the PCE price index and from 2.7% to 2.8% for the core PCE price index. Moreover, both of June’s annual rates of inflation will exceed their likely rates for Q2 2025 of 2.4% for the PCE price index and 2.7% for the core PCE price index.

Friday, August 1:

Markets eagerly await the Friday August 1 release on July’s labor market. Partly because June’s 147,000 addition to payrolls included the creation of only 74,000 private-sector jobs, I expect July’s monthly addition to payrolls will be no greater than 100,000 jobs. Remember July’s 74,000-worker addition to private-sector payrolls was more than accounted for by the 59,000 jobs added to healthcare & social assistance and the 20,000 jobs added to leisure & hospitality. The unsustainably large 73,000 jobs added to government payrolls in June consisted of a loss of -7,000 federal government jobs and an addition of 80,000 jobs to state & local government payrolls. Education supplied 64,000 of the 80,000 jobs added to state & local government payrolls.

The unemployment rate may rise from June’s 4.1% to July’s 4.2%, while the monthly increase of average hourly earnings rises from June’s 0.2% to July’s 0.3%.

Forthcoming increases in manufacturing capacity may yield surprisingly few manufacturing jobs …

Other releases scheduled for August 1 include the ISM’s index for July’s manufacturing activity, July’s consumer sentiment index, and June’s construction spending report. The recent trend of construction outlays on manufacturing facilities warns that stepped up efforts to increase the US’ industrial capacity may not lead to outsized gains in manufacturing employment.

The Biden administration, the US congress, and state governments supplied outsized tax incentives and subsidies to boost the US’ production of microchips, EVs, batteries, and green energy infrastructure. From the 12-months-ended May 2022 through the 12-months-ended May 2025, current-dollar expenditures on the construction of manufacturing facilities soared higher by a cumulative 149%, or from $94 billion to $233 billion. Nevertheless, from May 2022 to June 2025, the number of manufacturing jobs barely rose by a cumulative 0.1%, or just 11,000 jobs.