Weekly Market Commentary October 5, 2026
Week in Review
Inflation came in below expectations and Q2 U.S. gross domestic product (GDP) growth exceeded forecasts, while labor data pointed to slower hiring. Together, the releases showed continued economic expansion alongside moderating labor demand and inflation above the Federal Reserve’s target.
Inflation: Softer Than Expected but Still Above Target
Personal consumption expenditures (PCE) data, the Federal Reserve’s preferred inflation gauge, came in softer than expected for August. Headline PCE rose 0.3% month over month versus an expected 0.4%, and 3.4% year over year versus an expected 3.7%. Core PCE, which excludes more volatile food and energy costs, increased 0.2% month over month versus an expected 0.3%, and 3.0% year over year versus an expected 3.3%. The data reflect price increases in other nondurable goods, gas and energy goods, and food services, which were the largest increases. The updated figures reflect the Bureau of Economic Analysis’ revisions to how it calculates the index, including changes to price measurements for legal services, software, and portfolio management.
Despite the softer readings, the figures continue to show that inflation remains above the Fed’s 2% target. The Fed raised rates by 0.25 percentage points in September to a range of 3.75%-4.00%, with markets predicting a 78% chance that the Fed remains on hold at the next October meeting.
Economic Activity: Growth and Manufacturing Remain Firm
Second-quarter real GDP grew at a 2.2% annualized rate versus an expected 1.5%, supported by consumer spending, business investment, and exports, while higher imports were a headwind. Separately, the Institute for Supply Management® (ISM) Manufacturing Purchasing Managers’ Index® (PMI) eased to 54.5 versus an expected 54.8, but remained above the expansion threshold of 50. New orders, production, employment, and supplier deliveries remained in expansion territory, while the prices component jumped as a result of tightening supply amid respondents’ concerns of higher costs due to tariffs and the war in Iran.
Labor Market: Hiring Slows as Layoffs Remain Limited
September non-farm payrolls surprised sharply to the downside with 29,000 jobs added versus an expected 89,000, down from 133,000 in August. Unemployment edged up to 4.2% versus an expected 4.1%. Job Openings and Labor Turnover Survey (JOLTS) openings declined to 7.079 million from 7.335 million and were below the 7.230 million estimate. Initial jobless claims were 197,000 versus an expected 201,000, and continuing claims were down to 1.701 million versus an expected 1.730 million. The figures point to slower hiring while layoffs remained contained, consistent with a “low hire, low fire” environment.
The Week Ahead
The coming week will provide updates on service-sector activity and the Federal Reserve’s policy discussions.
Services Activity: Monitoring the Pass-Through of Higher Prices
Markets will look to the ISM Services PMI for evidence that service-sector activity remains in expansion. The report will provide additional context on how higher prices are feeding into the service sector.
Federal Reserve: Assessing the Path for Further Rate Hikes
The Federal Open Market Committee (FOMC) minutes will provide details on how policymakers assessed inflation, employment, and the potential path of rate hikes through year-end. Markets will focus on commentary about further rate hikes as recent cooler inflation and employment data shape expectations.
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