Pearl Quest EconPulse: Macro Conditions (August 2026)

Overall Regime: Steady Signal Board, Shifting Ground

Observation dates for the indicators above range from July 2026 (CPI, unemployment, default spreads, gold) to August 2026 (VIX, Bitcoin, and live yield curve readings), with consumer sentiment at June 2026. Each figure is described in this post by the date it was observed, not by the month of publication.

Pearl Quest EconPulse for August 2026 shows a signal board unchanged from July: labor, credit, and the yield curve supportive, growth and inflation neutral, and consumer confidence the lone red. Inflation cooled for a second consecutive month even as long-term Treasury yields reached multi-decade highs. The framework and the bond market are telling opposite stories. The current regime is classified as "Steady Signal Board, Shifting Ground."

Not one of the seven signals changed color between July and August. If you read only the stoplights, you would conclude that nothing happened this month.

Something happened. It happened in the bond market, in the oil market, and in the gap between what households are feeling now and what our data can see. The signals held still while the ground moved underneath them, and this month the more useful story is the one the board cannot yet tell.

A New Quarter Is Not a New Trend

The Atlanta Fed's GDPNow estimate reads 4.0% for the third quarter as of August 18. Last month's brief carried 1.7%. Read side by side, that looks like a dramatic reacceleration.

It is not, and the comparison is not a valid one. July's 1.7% was a nowcast of the second quarter. That quarter has since closed, and the BEA's advance estimate landed at 1.5%, almost exactly where the model had it. The 4.0% is a nowcast of a different quarter, one that is barely half over.

Early-quarter nowcasts are unstable in a way that late-quarter ones are not. Q3 opened at 5.0% on July 30, climbed to 6.2% by August 3, and has fallen in every update since: 5.8%, then 4.3%, then 4.0%. A third of the projected growth evaporated in under two weeks, with the revisions concentrated in consumer spending and private investment.

We have adopted a standing rule in response. During roughly the first six to seven weeks of a quarter, the Growth signal is capped at Neutral regardless of the nowcast level, the z-score is withheld, and a month-over-month change that crosses a quarter boundary is never described as acceleration or deceleration. That is why Growth shows yellow this month instead of the green the raw reading would produce.

The honest statement: we do not know yet what Q3 looks like. Q2 finished soft. The current quarter is being nowcast high and revised down.

Inflation Cooled Again, and the Bond Market Sold Off Anyway

CPI eased to 3.5% year over year as of July, down from 3.7% in June. Core inflation sits at 2.5%, its lowest in five months and back to roughly its pre-conflict pace. That is two consecutive months of cooling. The framework scores inflation Neutral, and on the data that is fair.

The bond market is not buying it. This week the 10-year Treasury yield reached 4.75%, its highest since January 2025, and the 30-year pushed above 5.31%, the highest in nineteen years. Long yields are at multi-decade highs, and the stated reason is inflation risk tied to the unresolved situation in the Gulf.

Sit with the contradiction, because it matters. Realized inflation is falling. Expected inflation, as priced by people committing capital for thirty years, is climbing. One of those two is wrong, and the framework currently only measures the first.

The Yield Curve, Reread

The curve is positively sloped and steepening. The 10Y-3M spread sits at 85 bps, up from 73 bps in July. The 10Y-2Y spread is at 52 bps, up from 41 bps.

A steepening curve is conventionally a good sign, and the framework reads it as supportive. But the reason for a steepening matters enormously, and it is worth being precise here. A curve that steepens because short rates are falling is a curve pricing relief. A curve that steepens because long rates are climbing, which is what is happening now, is a curve pricing inflation risk and demanding a larger term premium to hold duration.

Same color on the board. Very different economics. The Fed Funds rate held at 3.63% and still registers as an easing cycle in the framework, yet futures markets are pricing meaningful odds of a rate hike in September, and the Fed chair has publicly questioned whether a hike is even his preferred tool for the job.

The framework has no market-implied policy-path input. It is scoring an easing cycle while the market prices tightening. That is a gap we are working to close.

Labor and Credit Keep Doing the Heavy Lifting

Unemployment ticked down to 4.1% from 4.2%, with a z-score of -2.20. Joblessness is running far below its one-year average, and the labor market remains the strongest single argument against a downturn narrative.

Credit stays benign, though slightly less so than last month. Default spreads widened to 1.59% from 1.53%, giving back part of the improvement, but they remain at the 22nd percentile of their five-year range, which is comfortably benign territory.

We have suspended the consumer delinquency rate from the framework this month. Its most recent observation dates to January and has not moved since, so it was contributing a green light based on data too old to mean anything. It returns to the board as soon as fresh readings resume. Credit Conditions therefore rests on the default spread alone in August.

These two are the reason none of this reads as crisis. Employed people with manageable debt keep economies moving.

Consumer Confidence Is Still the Lone Red

The framework carries consumer sentiment at 49.5, the June observation, sitting at the 3rd percentile of its five-year range. It is the only red signal on the board, as it has been all summer.

The University of Michigan series reaches our data source with a one-month publication delay, so this signal always describes the recent past. That is worth stating plainly rather than glossing over, because it means the board's read on households is roughly two months behind the households themselves. More recent readings are discussed in the editorial section below, outside the signal framework.

What the June observation tells us on its own is bleak enough. A 3rd-percentile reading means sentiment is lower than it was in roughly 97% of the past five years, a stretch that includes the inflation spike of 2022. Consumer spending is about two-thirds of the economy, and while sentiment does not translate to spending one-for-one, a reading this depressed sitting alongside below-trend growth narrows the margin for error.

Hedges and Risk Appetite

Gold is up 20.1% year over year as of the July observation, down from 28.5% last month. Still a strong hedge return, but decelerating. Bitcoin is up 1%, essentially flat, and reads Neutral. Risk appetite is neither fleeing nor surging.

VIX at 15.8 is the quietest reading in months, down from 18.8. Equity markets are not pricing stress. Given where long bond yields are, that divergence between equity calm and bond alarm is itself worth watching.

What the Data Doesn't Show Yet

Four things sit outside the signal board this month.

First, the bond market repricing described above is not captured by any indicator we score, and it has escalated since the brief was generated. The 30-year Treasury yield reached levels last seen in 2007 before easing back to roughly 5.23%, with the 10-year near 4.70%. More telling than the yields themselves is the response: the Treasury is at least doubling its bond buyback program starting next month, to a minimum of $32 billion a quarter, specifically to relieve pressure on the long end of the curve. When the government intervenes directly to hold long rates down, the bond market has stopped being background.

Second, consumer sentiment has moved twice since the June reading on the board. It recovered strongly in July to 55.2, a five-month high, and then the August preliminary reading, released August 14, fell to 51.0, a drop of nearly eight percent. The survey attributes the reversal to inflation tied to the conflict: expected business conditions fell 11% for the year ahead and 17% for the longer term, and only 8% of households expect their income to grow faster than prices. That last figure is the one to sit with. Consumers are not responding to the cooling CPI prints. They are responding to the price level they live with and to the same energy risk the bond market is pricing. None of this enters the framework until October.

Third, the situation in the Gulf remains unresolved, with the blockade against Iranian tankers still in place and no clear timeline for its end. Energy prices remain the transmission channel connecting all three items. Gasoline was still up nearly 25% year over year in the July CPI report even as headline inflation cooled.

Fourth, and most immediately: the Kansas City Fed's Jackson Hole symposium runs August 27 to 29, and Chair Warsh delivers his first keynote in that role on Friday. Markets are pricing roughly one-in-three odds of a rate hike at the September meeting. This post publishes two days before the event most likely to settle the question it raises.

What to Make of All This

An unchanged board across two months is not the same as an unchanged economy. Here is the actual movement:

• Growth entered a new quarter, and the apparent jump from 1.7% to 4.0% is a change of subject, not a change of trend. Q2 closed at 1.5%.
• Inflation cooled for a second month in the realized data, with core back to pre-conflict levels.
• Long-term yields hit multi-decade highs, pricing exactly the opposite of what the CPI prints say.
• Consumer confidence rebounded and then broke, though the framework will not register either move until autumn.
• Labor and credit held, and remain the structural floor under all of this.

The defining tension of August is that realized inflation and expected inflation have separated. Backward-looking measures are improving. Forward-looking measures, the ones set by markets and by households, are deteriorating. A framework built on realized data will always score the first and miss the second, which is precisely why these posts carry a section for what the data does not show.

What to watch: whether the August CPI print holds the disinflation or absorbs the energy pass-through, whether long yields stabilize now that the Treasury is buying, and what Chair Warsh says at Jackson Hole on Friday. If long yields keep climbing while growth nowcasts keep falling, the ground will have shifted far enough that the board will finally have to move with it.