US economic growth is being supported by easing living costs that bolster consumer spending, even as high interest rates continue to restrain business investment, Oxford Economics said Tuesday in a report.
Oil prices have fallen to the lowest since the Middle East conflict began after the US and Iran agreed to halt fighting, reducing the risk of global supply disruptions, the report said. The peace deal has reopened the Strait of Hormuz and prompted a 60-day US Treasury exemption that eases key Iranian oil sanctions.
West Texas Intermediate crude oil fell 0.8% to $73.29 in Tuesday trading, and Brent declined 0.9% to $77.20.
The end to the war and the more hawkish tone from the Federal Reserve "have opposing effects on the outlook," said Matthew Martin, Oxford Economics senior US economist. Lower energy prices should ease pressure on household budgets and support equity markets, "allowing consumers to retain more spending momentum," he said.
At the same time, the Fed's recent shift in market pricing has tightened financial conditions and flattened the yield curve, which will weigh on business investment and consumer spending on big-ticket items that require financing, Martin said.
The housing market showed unexpected resilience in the second quarter as construction picked up and pending sales pointed to a third straight monthly gain despite high mortgage rates, the report said. Still, "higher-for-longer mortgage rates, downbeat sentiment, and relatively high unsold inventory will keep the housing market trending mostly sideways the rest of the year," Martin said.
US pending home sales rose more than expected last month, while housing starts fell to their lowest level since 2020 amid a sharp drop in multifamily projects, recent data show.
