Heat dome wilting America

Note: As always, there was a separate Economic Commentary discussing the monthly jobs report published on July 2nd.

Trend watch

Summer temps typically spike near the Fourth of July, which is the hottest month of the year for the contiguous United States. With a high-pressure atmospheric system—a so-called heat dome—parked over much of the country, the National Weather Service is expecting record-breaking triple-digit temperatures this week. That’ll put an estimated 102 million people under extreme heat warnings nationwide, with another 43 million under extreme heat watches.

Such extreme temperatures cause outdoor activities to be canceled or delayed for everything from summer camps and sports to farmers markets and food truck festivals. For instance, there have already been hundreds of localized cancellations and widespread operational modifications across the Midwest and Northeast during this past week. Many communities have opened cooling centers and hydration stations.

We’re hopeful that the extreme temps don’t crimp the World Cup, America250, and Fourth of July events and celebrations. As we noted here last week, the World Cup has boosted U.S. hotels. For the week ending June 27, hotel occupancy rose to 72.2%, the highest level since July 2024. Revenue per available room (RevPAR)―a key hospitality metric―increased 25% on average on game day in the host cities for the 27 matches last week, according to Truist Securities Lodging analyst C. Patrick Scholes.

Weekly U.S. air passenger counts ebbed slightly week-over-week to 19.1 million in the past 7-day period. But that’s a Wednesday-to-Wednesday comparison and doesn’t include Thursday, July 1st, which is expected to see a massive increase ahead of the long holiday weekend.

Our take

The case for a resilient consumer received another boost – this one from the auto sector. New vehicle sales surged in June to their highest level in nearly a year. The increase suggests that consumers remain willing to make large-ticket purchases despite elevated interest rates and economic uncertainty. The strength in auto sales points to underlying resilience in household finances and confidence.

Meanwhile, lower gasoline prices continue to provide a constructive backdrop for consumers, and there may be additional relief ahead at the pump. A further decline in gasoline prices would bolster household purchasing power, helping offset lingering inflation pressures and supporting discretionary spending activity during the second half of the year.

On the manufacturing front, activity softened in June as the ISM Manufacturing Index slipped following May’s improvement. Encouragingly, the prices component also eased, indicating that inflation pressures within the goods-producing sector remain contained. The moderation in both activity and pricing suggests manufacturing continues to struggle to gain meaningful momentum while inflation trends move in a more favorable direction.

A deeper dive into the ISM manufacturing dashboard reinforces this message. May’s signs of improvement failed to maintain that momentum in June, with several indicators – including new orders and order backlogs – either stagnating or retreating.

While conditions don’t point to a significant deterioration, the manufacturing sector remains challenged by uneven demand and continued uncertainty surrounding the economic outlook.

Meanwhile, the labor market continues to reflect a “low hire, low fire” environment. Job openings unexpectedly jumped to their highest level in two years during May but hiring and quits rates both edged lower. The combination of elevated openings alongside steady hiring, layoffs, and quits suggests that labor market normalization is continuing gradually rather than abruptly. Employers remain reluctant to reduce staff, while workers appear less inclined to voluntarily change jobs, supporting the view that labor market conditions are cooling but remain fundamentally stable.

Bottom line

The U.S. economy continues to chug along despite challenges such as gasoline prices and geopolitical uncertainty. A broad range of incoming economic data suggest moderating inflation alongside steady growth, albeit uneven, with the recent drop in energy prices offering some near-term relief to consumers. Yet, that unevenness maintains the feeling that the economy has “one foot on the gas, one foot on the brake.” Based on current conditions, we believe the bar remains high for a 2026 Fed rate hike.