The U.S. economy showed signs of robust health in July, with business activity accelerating at the fastest pace since November 2026. This positive trend, highlighted by preliminary surveys, suggests a strong start to the third quarter, despite lingering global uncertainties.
As the Federal Reserve maintained steady interest rates, economic indicators such as jobless claims and earnings reports continued to reflect a healthy and expanding economy. This article delves into the key economic developments of July, offering insights into the current state of the U.S. market.
July Business Surveys Indicate Strong Economic Expansion
Preliminary business surveys conducted by S&P Global in late July provided an early glimpse into the economic activity for the month. The data, encompassing about 85% of respondents, revealed a significant acceleration in U.S. business activity, marking the fastest growth since last November. This uptick follows a period of near-stagnation in March, signaling a notable recovery.
The service sector led this growth, achieving an eight-month high in business activity due to stronger new orders. While manufacturing growth showed signs of softening, it remained at elevated levels. The employment index was particularly encouraging, with both manufacturing and services rebounding into expansion territory. According to S&P Global, these survey results align with an annualized economic growth rate of 2.0%, a marked improvement from the 1.2% pace signaled for the second quarter.
Federal Reserve Maintains Steady Interest Rates
During its recent meeting, the Federal Reserve decided to keep the target range for the federal funds rate unchanged at 3.50% to 3.75%. This decision supports the Fed’s dual mandate of stable prices and full employment. The Fed noted that economic activity is expanding at a solid pace, despite elevated uncertainty stemming from the conflict in the Middle East.
The Fed highlighted strong productivity growth, capital investment, and job gains that have kept pace with workforce expansion. While inflation remains above the 2% target due to supply shocks in sectors like energy, the Fed reiterated its commitment to achieving price stability. This cautious optimism reflects a balanced approach to managing economic growth and inflation.
Jobless Claims and Earnings Reports Reflect Economic Health
Initial jobless claims, a timely and accurate indicator of the labor market, remain at historically low levels. This trend, consistent throughout the year, underscores the robustness of the U.S. labor market and The low claims rate aligns with the positive economic data, providing further evidence of a healthy job market.
The second quarter earnings season has also shown promising results, following a strong first quarter. Over 48% of the S&P 500’s market capitalization has reported, with expectations for Q2 earnings to grow by an impressive 27%. Technology and energy sectors are leading this growth, with earnings beating estimates by 7% on aggregate. This positive earnings momentum is supported by the ongoing massive AI buildout and healthy economic readings.
Despite the risks posed by the ongoing Iranian conflict, the market remains positive. The market-capitalization weighted S&P 500 index, heavily influenced by major AI-related firms, is in consolidation mode with some weakness in semiconductors. However, the equal-weighted S&P 500 index continues to show leadership. The expectation is that stocks will be supported by further economic growth and robust profits.
