DOMESTIC DYNAMISM

While 26Q2 GDP growth slowed to 1.5% annualized, net exports (think imported semiconductors) subtracted a full percentage point from GDP and inventory drawdowns subtracted another 0.7%. That means final sales to private domestic purchasers rose at a rate of 3.9% in 26Q2, best since 23Q1, due to strong consumer spending and robust capex. Moreover, inflation is benign with core PCE (the Fed’s favorite measure) down 0.1% M-o-M. Hopefully this continues.