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Weekly Update 10/01/2026: Core Inflation Report Released as Monthly Labor Reading Looms

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Inflation

The highlight of this week outside of the labor report was the release of the personal income, personal spending and personal consumption expenditure reports from the Bureau of Economic Analysis (BEA). Inflation-adjusted personal spending rose 0.6% in August, which was the biggest jump since March 2025. That was slightly ahead of the 0.5% rise in a Bloomberg survey of economists. Personal income rose 0.2% in August, below the downwardly revised +0.3% figure in July. Personal consumption expenditures (PCE), which is the measure closely tracked by the Federal Reserve, rose 0.3% in August or 3.4% year-over-year. That was below the estimate of a 3.7% rise and inline with the reduced reading from July. Excluding food and energy categories, the so-called core PCE figure rose 3.0% year-over-year. Again, that was below the consensus estimate and even with July’s figure which was revised downward from 3.3%. 

The main takeaway is that consumers are still spending, despite elevated inflation likely thanks to a stable job market and the wealth effect of stock market indices near record highs. Households increased purchases of motor vehicles, clothing and furnishings. Annual updates to gross domestic product were also released on Wednesday by the BEA, which showed the economy growing faster in the first and second quarter than previously thought and consumer spending rising at the fastest pace since the end of 2024. Nevertheless, overall inflation whether using the headline or core figure, remains stubborn. Based on PCE data, the level of price increases has surpassed the Fed’s 2.0% goal for more than five years. This is what prompted the Fed to raise rates at its last meeting a few weeks ago. Inflation-adjusted disposable personal income—that is, money left to spend after paying taxes—was flat in August compared to July. The personal saving rate, or the share of consumers’ disposable income that they save, fell from a month early to 4.1% in August, matching the lowest level since 2022. 

Despite this trend, investors were encouraged that revisions cooled June and July’s PCE readings, meaning the Fed may not have to raise rates at its next confab. Revisions to three PCE price components subtracted 36 basis points (0.36%) from the core PCE annual inflation rate for July. For all of 2026, the annual inflation rate was revised 25 basis points lower on average. At annualized rates, core PCE slowed to a 2.0% pace on a three-month basis (vs. 2.3% prior) and 2.7% on a six-month basis (vs. 2.9% prior). This clearly shows that preannounced changes to the composition of three components (portfolio management prices, cost of computer software & accessories and legal services fees) had a significant downward effect on the run rate of inflation over the summer. The share of PCE components rising more than 3% over the past 12 months—a metric tracked by Fed Chairman Warsh—fell from 54% to 52% in August. Whether consumers can continue their spending proclivities into the crucial holiday season will be key to future economic trends.

Labor Market

The Jobs Openings and Labor Turnover Survey (JOLTS) was released on Tuesday morning by the Bureau of Labor Statistics. Available positions fell to 7.1 million from 7.5 million in July, reaching a five month low. The decline in openings was broad based as the figure fell short of all estimates in a Bloomberg survey of economists. Layoffs also fell to the lowest level since March 2025, further emphasizing the “low hire, low fire” environment. Employers are cautious to expand payrolls, but they are also reluctant to reduce the workforce. People voluntarily leaving their jobs, known as the “quits rate,” held steady at 1.9%. The report “does not inspire much confidence that the dynamism needed to meaningfully improve the overall employment picture will materialize any time soon,” said Cory Stahle, senior economist at the job site Indeed. The “combination of low hiring and even lower layoffs and quits keeps payrolls growing but makes the labor market far less dynamic than it was a few years ago,” he added.

Initial unemployment claims were reported earlier today. Figures fell by 1,000 to 197,000 in the week ended September 26, according to the Labor Department. That is the lowest level since July and below the median estimate of a Bloomberg survey of economists, which had predicted 200,000. Continuing claims fell by 11,000 to 1.7 million in the week ended September 19, which is that metric’s lowest level since March 2023. Claims have remained near historically low levels for the past few months, further emphasizing the “low hire, low fire” theme. The four-week average of new claims declined to a seven-week low of 200,000.

Wall Street is awaiting the monthly nonfarm payrolls report which will be released by the Labor Department tomorrow at 8:30am. In a survey of economists by Bloomberg, the expectation is for a gain of 88,000 jobs in August, down from the 162,000 created in July. Investors will also be looking at the two-month payroll net revision because in August, previous months’ figures got enhanced by another 55,000 jobs once further data was collected. The unemployment rate, which is taken from a survey of households, is expected to hold steady at 4.1%, with the labor force participation rate also forecasted to be unchanged at 61.6%. The Fed will also be focused on average hourly earnings because it is an important inflation input into their models. The consensus forecast is for the year-over-year figure to be at 3.1%, which is above the 2.0% Fed target but not overly heated. With affordability being an issue in many parts of the country, households are eager to have their incomes rise to offset an increasing cost of living.

The Bloomberg economic group released an insightful observation: “The August JOLTS report shows labor demand cooling more clearly than in recent months. If the upcoming September jobs report also shows the unemployment rate moving higher as we expect, the combination would make an October Fed pause more likely,” wrote Andrew Sacher, senior U.S. economist. The current odds of a Fed rate hike at its next meeting scheduled for October 28 is 33%.  There are two factors suggesting a rate hike will not come. The first is that the Fed may want to wait for more data. The following Federal Open Market Committee meeting takes place over six weeks later allowing for more inflation and labor market data to be interpreted. New York Fed President John Williams suggested as much when he commented earlier this week that there was “no need for urgency” to raising the target range. The second reason is that the late October meeting is less than a week before mid-term elections the first week in November. In an attempt to stay as apolitical as possible, the Fed may delay any changes to avoid even the hint of political influence on voting. Stay tuned!

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