The Federal Open Market Committee (FOMC) maintained their economic assessment of a strengthening labor market and a strong rate of economic activity from their August meeting and voted unanimously to raise the prime rate by 25 basis points to a range of 2.0% - 2.25%. The FOMC also updated their June economic projections, with the median estimates increasing 2018 GDP from 2.8% to 3.1%, and 2019 from 2.4% to 2.5%, and raising the 2018 unemployment rate from 3.6% to 3.7%. Their estimates for future prime rate increases were unchanged, with one more 0.25% raise slated for 2018, three increases for 2019, and one increase for 2020, bringing the prime rate to 3.25% - 3.5%, but eventually dropping to a longer run rate of 3.0% (+0.1% from June’s 2.9% forecast).

In the third estimate of 2018 Q2 GDP upward revisions to most GDP components and a slight downward revision to imports were balanced by a downward revision to private inventory investment, leaving GDP unchanged at 4.2%. The average of real GDP and real GDI (gross domestic income), a supplemental economic measure, was revised downward by -0.1% to 2.9% due to a -0.2% drop in the real GDI estimate to 1.6%. Both the overall gross domestic purchases and personal consumption price indexes were revised upwards by +0.1% to 2.4% and 2.0%, respectively. Compared to their initial estimate, corporate profits from current production were revised downward from $72.4 billion to $65 billion, with significant downward revisions to profits for domestic nonfinancial corporations (-$10.6 billion to $53 billion), and rest-of-the-world profits were revised from a -$8.0 billion decrease to a $4.5 billion decrease.

In August, wages and salaries rose +0.5% and rental income was up +0.8%, helping to boost personal income up by +0.3% for the month and +2.9% for the year. Personal consumption expenditures (PCE) were up +0.3%, slowing from July’s +0.4% rise, and were up +3.0% vs August 2017, with yearly increases of +6.4% for durable goods, +3.3% for nondurable goods, and +2.5% for services. PCE inflation was relatively unchanged from the previous month, with a +0.1% monthly gain and a -0.1% drop in the yearly rate to 2.2%, while core inflation, which excludes food and energy, remained at the FOMC’s target 2.0% yearly rate. The personal saving rate remained steady at 6.6%, down from a high of 7.4% in February, and the lowest rate since 6.2% in December 2017.