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DATA D-DAY: GDP, PCE, DURABLE GOODS, JOBLESS CLAIMS

A wave of data crashed ashore on Thursday, so grab your surfboards.

Among the more eye-popping elements was the sharp upward revision in the Commerce Department's third and final stab at first-quarter GDP USGDPF=ECI. The U.S. economy grew by 2.1% at a quarterly annualized rate in the first three months of 2026, much more robust than the 1.6% rate previously reported, and a muscular rebound from the fourth quarter's languid 0.5% growth rate.

Analysts expected a repeat of the 1.6% number.

Below the surface, the Commerce Department's first-quarter GDP shows international trade was a smaller net detractor than previously thought, dampening the topline by 0.4 percentage points. While private investment added 1.4 pps to the total, construction of residential and non-residential structures detracted 0.3 and 0.1 pps, respectively.

Government spending added 0.7 pps to the total, mostly on the federal level.

On the downside, consumer spending, which accounts for about 70% of the U.S. economy, was revised sharply lower, to 0.5% from 1.4%. In fact, the consumer only contributed a paltry 0.4% to the topline number.

"Consumers’ spending looks less resilient in the face of the energy price shock," writes Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. "The upward revision to Q1 GDP growth was almost entirely driven by the net trade drag being revised smaller."

The Commerce Department also released its May Personal Consumption Expenditures (PCE) report USPCE=ECI.

Starting with the PCE price index, the Fed's preferred inflation yardstick, headline and core prices (which exclude food and energy items) increased on a monthly basis by 0.4% and 0.3%, respectively. Both are repeats of the prior month's numbers.

Year-on-year, headline inflation heated up to 4.1% and core prices increased by 3.4%.

While these numbers were largely expected, as the fourth and final major inflation indicator for May, they confirm that annual inflation continues to drift higher, bolstering the case for a rate hike from Warsh & Co by the end of the year.

Unless, of course, it turns out inflation has peaked.

"It’s our expectation that inflation will start going lower now that the Strait of Hormuz has reopened and oil prices are coming down, so that may alleviate some of the pressure on the Fed," says Chris Zaccarelli, chief investment officer at Northlight Asset Management. "But next month’s data needs to be lower than what we are seeing today if that is going to be the case."

Elsewhere in the report, personal income increased by 0.7%, much stronger than the 0.4% increase analysts expected and a solid bounce-back from April's flat reading.

Personal consumption grew by 0.7%, just north of economists' projections and stronger than the previous month's 0.4% growth. Spending at the gasoline pump accounted for 13.5% of the monthly increase.

Services provided 60.4% of the monthly consumer spending growth.

With outlays keeping pace with income growth, the savings rate — or the unspent portion of disposable income — held firm at a low 3.0%.

"The squeeze in real household incomes from higher oil prices has meant consumers have run down savings or tapped into wealth to fund spending, highlighted by the drop in the personal saving rate to 3% in recent months, from 4.6% in 2025," says Michael Pearce, chief U.S. economist at Oxford Economics.

New orders for long-lasting U.S.-manufactured goods USGDN=ECI fell as expected by 4.5% last month in a partial pullback from April's 8.5% gain.

As is often the case, airplanes provided much of the headwind.

Diving below the surface of the Commerce Department's report—which covers everything from waffle irons to attack drones—a 51.8% drop in orders for commercial aircraft dragged the headline lower; excluding transportation-related goods, new orders would have increased by 1.3%.

Motor vehicles/parts rose 1.1%, while computer-related goods increased 1.6%.

But new orders for core capital goods—which exclude aircraft and defense items and are considered a barometer of U.S. corporate capex plans—jumped by 1.6%, blasting past the 0.6% estimate.

“(Core capital goods) show that the economy is picking up steam somewhat," Peter Cardillo, chief market economist at Spartan Capital tells Reuters. "Capex is strong and businesses are not pulling back, which is a good sign for the economy.”

Switching to the labor market, 215,000 U.S. workers joined the queue outside the unemployment office USJOB=ECI last week, 5.3% fewer than the week prior and 10,000 south of consensus.

Ironing out weekly volatility, the underlying trend — as expressed by the 4-week moving average — is sideways with a slight upward bias.

Ongoing jobless claims USJOBN=ECI, which are reported on a one-week lag, increased 1.2% to 1.821 million, or 21,000 more than analysts expected.

Coupled with low jobs sentiment and increasing unemployment duration times, elevated continuing claims and low initial claims are painting a picture of a low hire/low fire labor market.

(Stephen Culp)

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