Economy

China's economy expanded 4.3% year-on-year in Q2 2026, its slowest quarterly pace since Q4 2022 and the first reading below the government's 4.5–5.0% full-year target band since Beijing adopted that range in March 2025. The miss was driven primarily by a record first-half contraction in fixed-asset investment of 5.7% and a third consecutive quarterly decline in construction, while a one-month rebound in retail sales and strong high-tech manufacturing output provided only partial offset. Both the IMF and World Bank project full-year 2026 growth below the target band's lower bound, and the late-July Politburo meeting now faces measurable pressure to shift from its April structural-reform stance toward demand-side support.

The Conference Board's U.S. Leading Economic Index fell to 99.1 in June 2026, but the organization simultaneously raised its full-year GDP forecast to 1.9%, reflecting AI-driven business investment offsetting weaker consumer conditions. The first-half 2026 LEI contraction of 0.3% is significantly smaller than the 1.1% contraction recorded in the second half of 2025, and the Conference Board's three-part recession framework — requiring sufficient duration, depth, and breadth of decline — is not currently triggered. With the Coincident Economic Index expanding and 70% of LEI components positive over the trailing six months, the data entering the July 28–29 FOMC meeting points to slow growth rather than contraction.

The June 2026 Final S&P Global PMI established a baseline of Composite Output at 52.2, Manufacturing at 53.9, and Services at 51.2, with output rising faster than employment across both sectors — a pattern S&P Global characterizes as productivity-led expansion. The July Philadelphia Fed Manufacturing index surged to 41.4, its highest since November 2021, offering a positive directional signal ahead of the national Flash PMI release on July 24. Because the release falls inside the Fed's pre-meeting blackout period, markets will interpret the data without official guidance before the July 28–29 FOMC meeting.