Economic Outlook - September 2026
- The second quarter gross domestic product (GDP) report from the U.S. Bureau of Economic Analysis (BEA) reported that the economy expanded at an annualized rate of 1.5% from April through June 2026. While this headline figure represents a deceleration from the 2.1% growth observed in the first quarter, the report highlighted the resilience of the consumer, which accounts for the majority of U.S. economic activity. Despite the slower pace of growth in the 2nd quarter, we continue to project overall GDP growth for 2026 to be in the 2% range.
- The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures index (PCE), held at 3.3% year-over-year in the most recent report from the BEA, with headline PCE at 3.7%, both matching or slightly exceeding expectations. Consumer spending stalled after strong gains in May and June, with real durable goods purchases falling. The combination of sticky inflation and cooling demand could give the Fed room to hold rates steady in September. However, a 1.5% drop in energy prices flattered this report and may not repeat, meaning headline inflation could tick back up in coming months.
- Housing starts declined 12.4% to a 1.239M annualized rate, a near six-year low; permits rose 5%. Existing home sales fell 1.7% to 4.06M annualized, a three-month low; median price fell 2% month-over-month to $434,100. Elevated mortgage rates continue to dampen both home building and existing home turnover, dragging on GDP growth (construction, related retail, moving services) and employment in a historically large sector. The rise in permits offers a modest silver lining that builders expect conditions to improve, but in the near term, the housing sector is acting as a net drag on growth.
- The jobs report from the U.S. Bureau of Labor Statistics surprised to the downside: nonfarm payrolls fell 23,000 in July against expectations of an 83,000 gain. Unemployment ticked down to 4.1%. Additionally, May and June jobs reports were revised down a combined 103,000, and wage growth slowed to 3.2% year-over-year, the weakest in over four years. The recent cooling trend of the labor market complicates the Federal Reserve’s stance that labor strength would afford them room for further rate hikes.
- The August release of the U.S. Purchasing Managers’ Manufacturing index (PMI) registered a reading of 54.6%, slightly down from July’s reading of 55.6%. As readings above 50 indicate sector expansion, the report continues to suggest that manufacturing activity remains robust, reflecting solid economic momentum.
Sources: FactSet, Dow Jones Publishing, Bloomberg, Bureau of Labor Statistics, S&P Global, U.S. Bureau of Economic Analysis, Commerce Department, U.S. Federal Reserve, U.S. Department of Housing & Urban Development
Disclosure: This commentary reflects the opinions of Welch & Forbes based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation.
For more information, call 617-557-9800, or email info@welchforbes.com.