Weekly Update 9/25/2026: US Business Activity Rises at Fastest Pace in Five Years
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Domestic Economic News
US business activity rose at the fastest pace in more than five years as robust demand pushed up new orders and employment at manufacturers and service providers. The S&P Global flash US composite purchasing managers index climbed to 58.4 in September, according to data released Wednesday. That was the highest since July 2021. Figures above 50 indicate expansion. Employment surged at a rate not seen in over four years, while input prices grew at the fastest pace since 2022. Respondents primarily blamed higher fuel and transport costs, though a pickup in wages was also noted by many firms. “Business is clearly booming now in both manufacturing and services,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement. “However, this growth is being accompanied by some of the most severe supply chain bottlenecks seen in the near-two-decade survey history if the pandemic is excluded, with companies also reporting increasing problems finding suitable staff,” Williamson said. Activity at service providers increased to 58.7 in September, the highest since 2021. A gauge for employment was the strongest since June 2022. The group’s manufacturing gauge jumped to 57, the best reading since 2022. New orders, a sign of demand, registered the fastest expansion since April 2022 while hiring was the strongest since February 2021. But supplier delivery times lengthened by the most since mid-2022 and raw material costs remained elevated, signaling supply chain pressures. Strong consumer spending, AI-fueled business investment and defense outlays have bolstered US businesses this year. The latest data from S&P Global suggest that strong demand is outweighing the jump in energy costs and supply chain snarls brought on by the Iran war. Williamson said that outside the post-pandemic re-opening of the economy, September’s business activity improvement “is the greatest recorded since early 2015.”
The question hanging over the housing market has shifted from when borrowing costs will come down to what happens if they go higher. Since late August, rates have ticked up, even crossing above 7% by some measures. Buyers and sellers should accept that as the “new normal,” said Lawrence Yun, chief economist of the National Association of Realtors. Mortgage rates may be far from the double-digit levels of the 1980s, but for people contemplating the biggest purchase of their lives, the reasons to hesitate are piling up. Record-high home prices and ownership costs are colliding with AI-driven job uncertainty, while stubborn inflation, rising energy prices, government borrowing and the war in Iran are pushing hopes for lower borrowing costs further out. The Federal Reserve has also signaled that more rate hikes may be coming. The 10-year Treasury yield, a benchmark that influences mortgage rates, jumped on Wednesday to the highest level in almost two decades. “Unfortunately, housing is roadkill here,” said Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School. Sellers are already feeling the strain. Nearly one in five homes for sale had a price cut in August, the highest share for that month in Redfin data going back to 2020, while 45% of August sales involved a seller concession. The typical home spent 50 days on the market, up from 36 when rates were approaching 8% almost three years ago. And with 1.5 million homes for sale — up 46% from 2023 — buyers have more room to negotiate. Housing has also been a slight drag on economic growth in recent quarters, though stronger consumer spending and the AI infrastructure boom have so far masked the weakness, said Charlie Dougherty, senior economist at Wells Fargo & Co.
US new-home sales climbed in August at the fastest pace this year, suggesting a mix of price cuts and sales incentives is helping ease affordability constraints. Sales of new single-family homes increased 6.4% in August to an annualized rate of 684,000, according to federal government data released Thursday. Economists expected a 616,000 pace, based on the Bloomberg survey median. The median sales price, meantime, decreased 5.8% from a year ago to $393,700. The annual decline was the largest since July 2025 and reflected a pickup in contract signings for homes priced less than $300,000. While the August sales improvement reflected ongoing efforts by homebuilders to spur demand with incentives, the pickup may prove short-lived. Mortgage rates have since moved above 7% to a more than two-year high and prices are still about 20% higher than they were before the pandemic
Builders have leaned heavily on sales incentives, including free upgrades and discounts on buyers’ mortgage rates, and begun reducing prices in greater numbers. Still, the challenges for the industry are mounting. Lennar Corp. noted how it is increasingly competing against the owners of existing homes, who are cutting prices more often, especially in big markets like Florida and Texas. “When a resale seller cuts price, they are competing directly for our customer and we respond, which is a meaningful part of the incentive and pricing dynamic,” Lennar Chief Executive Officer Stuart Miller said on a call with analysts last week. The government’s report showed the supply of new homes for sale held at 483,000 — still elevated but down 2% from a year earlier. That represents 8.5 months supply at the current sales pace. Homebuilders have become more deliberate with their construction starts as they try to sell off the bloated inventory.
On the labor market front, weekly jobless claims fell 1,000 to 197,000 in the week ending September 19, compared with the Bloomberg estimate for 200,000, Labor Department data showed. The four week moving average remained stable showing the resiliency of the US labor market at 202,250. Continuing claims rose 2,000 to 1.719 million in the week ending September 12.
Interest Rate Insight and the Fed
There was plenty of “Fed Speak” out this week and here are some of the highlights:
Federal Reserve Bank of Boston President Susan Collins said she supported last week’s decision to raise interest rates, which she said would help bring inflation back to the central bank’s 2% target. “A somewhat more restrictive federal funds rate will help ensure that inflation durably returns to target,” Collins wrote in a LinkedIn post on Tuesday. “With the labor market on a better footing, monetary policy can focus on a timely return to price stability, especially after five and a half years of too high inflation.” Collins, who doesn’t vote on monetary policy this year, said she saw an “increased likelihood” of scenarios in which inflation remains “notably above 2%.” Fed officials voted unanimously last week to raise their benchmark interest rate by a quarter percentage point. In their updated economic forecasts, policymakers penciled in one more quarter-point hike this year, according to the median forecast. Collins told the Associated Press on Monday she was among the Fed officials who projected a second rate increase by year end, and she sees rates holding steady in 2027. Chairman Kevin Warsh, who again abstained from submitting rate projections, said last week’s decision removes a “dose of accommodation” from the economy.
Federal Reserve Governor Michael Barr said further interest rate increases are likely needed to return inflation to the central bank’s 2% target. Barr’s outlook follows a string of warnings from fellow policymakers that inflation remains too high, stoking expectations for additional rate hikes over coming months. “In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion,” Barr said in the text of remarks he’s scheduled to deliver Wednesday in Chicago. “We want to support sustainable, durable growth in support of maximum employment, and price stability is crucial to that.” As noted, Fed officials voted unanimously to raise interest rates last week for the first time in more than three years, bringing the benchmark federal funds rate to a range of 3.75% to 4%. Policymakers have become increasingly worried about inflation that hasn’t touched their 2% target in five and a half years, with some warning of price pressures that appear to be persistent. In a new set of rate projections released after last week’s decision, Fed officials penciled in another increase before the end of the year, according to the median forecast. The median projection for 2027 pointed to no additional rate hikes next year, though eight officials saw their benchmark rate ending next year half a point higher than current levels. As mentioned above, data released Wednesday showed a measure of US business activity rose at the fastest pace in more than five years. After the news and Barr’s remarks, investors raised the probability they assign to a rate increase next month to greater than 70%, based on pricing in federal funds futures. Describing the economy as strong and the labor market as solid, Barr in his speech said inflation isn’t trending toward target fast enough and the risks to achieving that goal have increased. Barr said he supported last week’s decision to raise interest rates. “In my view, given changes to the economy, we were out of position, and we made an adjustment in the right direction,” Barr said. In a speech that was otherwise focused on housing policy, Barr said although short-term monetary policy affects mortgage rates, several other factors, such as a shortage of homes and lagging incomes are keeping housing costs unaffordable. “Mortgage rates are generally lower when inflation is lower, and we are working toward that goal,” Barr said.
Federal Reserve Bank of Richmond President Tom Barkin warned it could take time for inflationary shocks to wane and there is a risk elevated pressures could become entrenched. In a speech detailing his latest outlook for the economy and monetary policy, Barkin said last week’s interest rate hike by the central bank will help to slow inflation, though he stopped short of signaling whether additional tightening is needed. Instead, the Fed official made clear that supply shocks are no longer proving to be one-offs, or temporary, leaving persistent price pressures across the economy. “These may pass in time, but I do expect it will take time,” Barkin said Tuesday during an event in Baltimore. “In the interim, there is a risk that current elevated levels of inflation could affect future inflation.” Policymakers have become increasingly worried about inflation that hasn’t touched their 2% target in five and a half years, with some warning of price pressures that appear to be persistent. “Where do we go from here? We are committed to returning inflation sustainably to our 2% target. Last week’s hike will help,” said Barkin, who does not hold a vote on Federal Open Market Committee decisions this year. “Will additional hikes be required, and how many? We’ll see.” Barkin sounded bullish in his outlook. “The economy and the labor market remain on solid footing,” he said. “We hear from businesses that economic conditions are, if anything, firming.” Answering questions after his speech, Barkin said he anticipates some of the pressures from higher energy prices and tariffs will fade, but emphasized that interest rates will also play a role in taming price pressures. “I do think some of these things will pass, and I do think appropriately restrictive policy will play a role too,” Barkin said after his speech. “How fast and how much difficulty we have on the demand side in getting there, I think we’re just going to have to learn.” In his remarks, the Richmond Fed chief laid out two scenarios for where inflation goes from here. The first is a quick cooling of price pressures as recent shocks fade. The second would see inflation pressures continuing to linger. “I’m open to the possibility that inflation could come back down in short order. Some of these recent shocks could reverse, ”Barkin said, adding that consumers could “start to reach their limit,” investments could slow and employment may “falter.” “On the other hand, inflation could prove more stubborn. Temporary shocks could drag on,” he said. “New cost pressures could develop. Firming demand conditions could flow through to prices, as could the impact of today’s inflation.”
Federal Reserve Bank of New York President John Williams said the shift to central clearing for US Treasuries and Treasury-collateralized repurchase agreements was ahead of schedule. “In anticipation of upcoming deadlines, the industry has already begun expanding infrastructure for cleared repo and cash trading, and activity has been shifting from uncleared to cleared markets ahead of schedule,” Williams said. The process requires eligible secondary-market transactions in US Treasuries, repo and reverse repo agreements to be cleared through a central counterparty. The New York Fed chief also reiterated his view that the central bank’s current framework of holding an “ample” level of bank reserves has proven “highly effective” at making sure market rates stay within the Fed’s benchmark fed funds target range, as well as supporting the functioning of financial markets. He said the Fed was committed to an elastic supply of bank reserves. “If underlying demand for reserves shifts due to changes in regulation, market structure or any other reason, the Federal Reserve will match that with a shift in the supply of reserves over time,” Williams said. In the decades after the 2008 financial crisis, the central bank adopted a framework designed to keep enough cash flowing through the banking system so that lenders can meet regulatory and settlement needs. Late last year, the Fed stopped the runoff of its balance sheet and began holding reserve management purchases to hold bank reserves within its desired “ample” level.
Impactful International News
Private-sector activity in the euro area grew at the fastest pace in more than three years as the service sector unexpectedly improved. The Composite Purchasing Managers’ Index compiled by S&P Global increased to 53.1 from 52 in August, well above the 50 threshold separating growth from contraction. Analysts in a Bloomberg survey had anticipated a small decline to 51.7. The region’s two largest economies both exceeded expectations, with activity in Germany growing at the fastest pace since October 2025 and France unexpectedly expanding at the quickest in more than two years. “Manufacturing, spearheaded by Germany, is enjoying its best growth spell for over four years, spurred by rising AI and defense spending,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said Wednesday in a statement. “But service-sector growth is also perking up to signal a broad-based improvement in the economic growth story.” The euro-area economy is showing greater resilience than expected to the Middle East conflict and the resulting jump in energy costs. How long it can resist such headwinds remains uncertain, however, with inflation at its highest level in almost three years and borrowing costs rising. The European Central Bank lifted interest rates this month for the second time since the Iran war broke out and is expected to do so again, possibly as early as October. Officials have been reassured by the robust economy, upgrading this year’s growth projection to 0.9%. Here’s what Bloomberg Economics had to say: “The composite PMI survey for the euro area suggests that the economy continues to perform well in the face of higher commodity prices and inflation is accelerating. That combination solidifies the case for the ECB to increase interest rates again. We expect a final hike in December.”
Britain borrowed more than forecast in the first five months of the fiscal year after rising inflation drove up spending in a blow to Chancellor of the Exchequer John Healey ahead of his debut budget next month. The deficit climbed to £77.3 billion ($103 billion) — £8.1 billion more than the Office for Budget Responsibility predicted in March. In August alone, borrowing came in above forecast at £18.3 billion. The OBR had predicted a deficit of £14.8 billion. The figures highlight the challenges facing Healey as he prepares a budget that must both set out Prime Minister Andy Burnham’s economic vision while reassuring jittery bond markets that borrowing remains under control. The rise in borrowing in August came despite a solid improvement in tax receipts and reflected sharp increases in the cost of goods and services, a record level of debt interest for the month and escalating welfare costs. “Borrowing was up by almost a fifth on last August, as spending increased more than government income, partly reflecting the impacts of inflation,” ONS senior statistician Tom Davies said. Burnham has set out ambitious plans from defense and devolution to housebuilding and social care. However, his room for maneuver is highly limited, with the rise in borrowing costs partly triggered by the Iran war already estimated to have wiped out half the £23.6 billion cushion against his fiscal rule. It comes amid mounting pressure on Burnham to come up with further cost-of-living support as households brace for a huge increase in energy bills. He has admitted that the upcoming budget will be “challenging.” Ruth Gregory, deputy chief UK economist at Capital Economics, said the figures painted a “dismal picture” of runaway spending. “This supports our view that a small or medium-sized tax and spending Budget is more likely than a big one and that many of the PM’s policy ambitions will be reined in to avoid big tax hikes.” She expects borrowing this year of £125 billion - £10 billion more than forecast by the OBR - and says Healey will need to find up to £14 billion of savings to restore his headroom. The ONS will publish one final update on the public finances before the Oct. 28 budget.
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