Economic Commentary -

The U.S. economy continues to show signs of improvement. Unemployment fell to 3.7 percent, and second quarter GDP grew to an annualized rate of 4.2 percent, which is the highest rate of growth since the third quarter of 2014. Net trade was additive mainly due to gains made among exports; however, the tariffs enacted this year have yet to impact economic data. Inventory drawn downs were the biggest drag on GDP and we saw the biggest decline since t he first quarter of 2014. Looking ahead, however, inventory typically rebuilds during the third quarter, which will be additive to growth. Despite the potential near-term contribution, if the aggregate inventory increase is too large, and demand doesn't keep pace, the negative impact of the rebuild could be greater than anticipated.

Inflation has sustained above 2.5 percent year-over-year, although this is still low by historical standards. In fact, from a historical perspective, inflation is lower than we would expect given the current levels and trends in the unemployment rate and the change in average hourly earnings.