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Benchmark revision shows less worrisome US inflation

Kathleen Stephansen, CBE

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Mortgage applications fell 4.2% w/w (-36.6% y/y) in the week ending October 2, the fifth consecutive weekly decline, after declining 6.0% w/w (-37.0% y/y) in the week ending September 25, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house fell 2.1% w/w (-14.9% y/y) in the latest week, after declining 4.3% w/w (-14.2% y/y) in the September 25 week. Applications for loan refinancing dropped 7.5% w/w (-56.3% y/y) in the October 2 week, the seventh consecutive weekly decline, following a decline of 8.7% w/w (-56.4% y/y) in the September 25 week.

The effective interest rate on a 30-year fixed-rate loan jumped 21bps to 7.73% in the week ending October 2 from 7.52% in the week ending September 25, reaching its highest level since November 2023. The rate on 15-year fixed-rate mortgages rose 16bps to 6.97% in the October 2 week from 6.81% in the September 25 week. The 30-year Jumbo rate increased 12bps to 7.54% in the latest week from 7.42% in the September 25 week. The rate on a 5-year ARM rose 13bps to 7.05% in the October 2 week from 6.92% in the September 25 week.

The share of applications for refinancing an existing loan fell to 37.0% of total applications in the week of October 2 from 38.3% in the week ending September 25. The adjustable-rate mortgage (ARM) share of activity was unchanged at 10.3% in the latest week.

The average size of a mortgage fell 1.7% w/w (-5.1% y/y) to $377,700 in the week ending October 2, after rising 0.9% w/w (-5.8% y/y) to $384,200 in the week ending September 25. The average size of a purchase loan declined 0.6% w/w to $448,400 in the October 2 week after rising 0.9% w/w to $450,900 in the September 25 week. The average size of a loan to refinance a mortgage fell 7.0% w/w to $257,200 in the week ending October 2 after declining 0.6% w/w to $276,700 in the September 25 week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.


- Applications for loans to purchase and applications for loan refinancing both declined in the latest week.
- Interest rate on 30-year fixed-rate loans jumped 21bps to 7.73%.
- Average loan size fell moderately in the October 2 week.


U.S. Mortgage Applications Fell in the October 2 Week

Michael J. Moran

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The US deficit in international trade in August widened by $12.7 billion (13.7%) to $105.6 billion, adding to notable slippage in July, when the deficit widened by $21.6 billion (30.4%). The recent deficits are well shy of the shortfalls seen in early 2025, when the rush to front-run likely tariffs led to surges in imports. Still, they are among the widest seen in the past few years, and they are well beyond readings seen before the pandemic (chart, left).

The trade results in the past few months have been driven by both strong imports and soft exports. Imports have increased noticeably in three of the past four months (and six of the past seven), with the increases in July and August being especially sharp at approximately 4% each. Exports, in contrast, eased from May through July before registering a small advance in August (chart, below). The shifts in exports and imports have largely been on the goods side; trade in services has shown modest changes recently, with the net result being a slight improvement in the services surplus.



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It might seem as though the surge in goods imports in recent months can be explained by another rush to beat the imposition of tariffs. President Trump in July signed proclamations imposing 50% tariffs on a broad range of Canadian goods, and the duties became effective on August 22. However, this presidential action did not seem to have a meaningful impact on trade. Imports from Canada in July were in the middle of the range from the past year; they moved into the upper portion of that range in August, but the magnitude of the change did not suggest a marked shift in behavior by Canadian exporters. A review of trade with other countries shows noticeable increases in US imports from several in July and August, while US exports to numerous countries have softened in recent months.

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The trade figures for July and August suggest that net exports will be a notable drag on GDP growth in the third quarter. The figures on goods trade in the past two months point to a negative contribution from net exports to GDP growth of approximately three percentage points, which would be one of the largest drags in modern history (chart, left). This estimate, of course, could shift. The data in hand could be revised, and September results could provide an offset. Also, the improvement in services trade will partly offset the slippage in goods trade, although the existing figures suggest only a modest influence.

- The past few months have shown strong imports and soft exports
- Net exports are likely to be a substantial drag on GDP growth in Q3


US International Trade: Deficit Surges in July and August

Robert Brusca

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**Expanding over all horizons based on median and average data**
Over the last 12-months and six months the composite PMI data show mostly setbacks – weaker performance- across the various 25 countries and regions that report in this table. However, over no horizon is there more than 8 of the 25 reporters showing an outright decline in terms of PMI values (readings below 50). Over the recent three-months more significant advances have been recorded. Only 21.7% of the reporters show weaking in their average performance over 3-months compared to 6-months. This is a sharp contrast with 82.6% weakening over six months compared to 12-months and even the 52.2% that shows weaking over 12-months compared to 12 months ago. The six-month comparison is a geopolitically difficult comparison.

**Progress, yes – but will it endure?**
Progress is in gear. The last three months of month-to-month PMIs readings yield median PMI values of 52.2 to 52.5 to 52.3 moving from July to September. September shows a slight back tracking, but all readings are above a diffusion value of 52. Averages show better growth transition from 52.1 to 52.4 to 52.8 on the same time sequence. Using averages we see a strengthening trend.

The US, UK, and EMU as an unweighed group also show progressive improvement. This group shows irregular improvement from 12-months to six-months to three-months, but the three-month diffusion average is higher than the 12-month average.

Among the 25 reporters surveyed. Eleven have percentile standings over the last 4 ½ years of data that are below their respective medians – that’s a lot. So, there is still a considerable proportion of reporters with weak queue percentile standings on the standards of about the last five-years- years that have not been terribly strong.

**Summing up**
The good news in this report is the breadth of improvement in September. With only five reporters below a diffusion reading of 50, indicating contraction and with 60% of the reporters showing month-to-month improvement.


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Composite Global PMIs trend higher 

Tian Yong Woon

In this week's Letter, we examine how a strengthening El Niño is adding a food and weather shock to an Asia already absorbing an oil shock. El Niño is now in full swing, with the Southern Oscillation Index at its lowest in over two decades, and its fullest effects may only arrive next year (chart 1). Food prices are already turning up, and food price levels have risen most in India, the Philippines, Vietnam and Indonesia (chart 2). That adds a second source of inflation on top of the oil price surge that followed the disruption of shipping through the Strait of Hormuz. On the supply side, drought is hurting rice producers just as fuel and fertiliser costs climb, raising the risk of a significant negative supply shock. The most exposed are net rice consumers with thin stocks, such as the Philippines (chart 3). India shows how quickly conditions can deteriorate: its monsoon ended with its largest deficit since 2015, and reservoir storage has slipped below normal (chart 4). The effects reach beyond food. Drier conditions have fed peat and forest fires in Indonesia, pushing Singapore's air quality into the unhealthy range for the first time since 2023 (chart 5). For policymakers, El Niño adds food security, water security and inflation management to a list already crowded by the energy shock and geopolitics. The most agriculture-reliant economies, India, Indonesia and Vietnam, face a double hit to growth and prices (chart 6). Should food inflation force central banks to tighten further, the growth cost would rise again.

**El Niño and food prices**
El Niño is now in full swing. The Southern Oscillation Index has plunged to around -2.7 on a three-month average basis, its lowest reading in over two decades and below even the 2015 trough (chart 1). Ocean temperatures tell the same story. The Niño 3.4 index, the main gauge of El Niño, tracks sea surface temperature anomalies in the central and eastern equatorial Pacific. A sustained reading of +0.5°C or more signals El Niño conditions, while readings above +1.5°C mark a strong event. The index reached +1.8°C in August, and the event is expected to persist into 2027. Its fullest effects may therefore only emerge next year, as weather damage to harvests feeds through to food supply with a lag. Food prices are already moving. Growth in the FAO Food Price Index has turned up to around 6% y/y, partly reflecting El Niño weather effects on crops. With food carrying a heavy weight in consumer baskets across emerging Asia, a sustained rise in global food prices would quickly find its way into regional inflation.

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That pass-through is already visible. Food price indices across the region have risen above their 2025 averages, led by India at around 8% higher by August (chart 2). The Philippines, Vietnam and Indonesia follow at roughly 4% to 5%, with Singapore, Taiwan, Malaysia and Thailand near 2%. China is the exception, with food prices still about 2% below their 2025 average. Food-related pressure, owing to El Niño weather and crop effects, has nudged up headline CPI inflation in several of these economies. This adds a second source of inflationary pressure on top of the oil price surge that followed the disruption of shipping through the Strait of Hormuz since March. In the Philippines, inflation is running at around twice the central bank's target. For governments and central banks, the two shocks together complicate both fiscal and monetary policy.

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**El Niño and food supply**
One key driver of the food price surges in parts of Asia is El Niño, specifically the extended droughts now affecting rice producers. Those impacts compound higher input costs for fuel and fertiliser, which stem from the near-closure of the Strait of Hormuz during the US-Iran conflict. Around a third of global seaborne fertiliser trade normally passes through the strait. Reduced rice planting due to higher input costs, coupled with weaker yields from poor weather, is setting up a negative supply shock. Among the most vulnerable are net consumers, which need more rice than they produce, and economies with low stocks relative to consumption (chart 3). The Philippines stands out on both counts, sitting well inside net consumer territory with thin stocks. By contrast, India, Thailand and Vietnam remain net producers.

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India serves as an example of how quickly conditions can deteriorate. Average rainfall, on a 12-month moving average basis, has fallen back to the lows of the 2023 to 2024 dry spell (chart 4). The decline has been abrupt, coming after rainfall held near its highs of recent years through 2025. As a result, India's water storage has swung from over 20% above normal around the turn of the year to roughly 12% below normal, the deepest shortfall since mid-2024. The two series have tracked each other closely, with a correlation of 0.73 over the period shown. The speed of that reversal underscores the severity of India's current water situation. It also matters beyond India's borders. As one of Asia's largest rice producers, India's harvest has a direct bearing on regional supply (chart 4).

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**El Niño and health**
El Niño’s effects go beyond food prices; they also carry environmental and health costs for Asia. Parts of the region, such as Singapore, are now experiencing seasonal haze, as smoke from peat and forest fires is carried across borders by prevailing winds (chart 5). The fires this year have burned mainly in Sumatra and Kalimantan in Indonesia, with smaller clusters in Peninsular Malaysia. Singapore's PSI, on a 90-day average basis, has climbed to around 62, its highest since the 2019 episode, as the Southern Oscillation Index has plunged. On 4 September, the PSI entered the unhealthy range for the first time since October 2023. This year's extreme El Niño is expected to prolong drier conditions, worsening air quality and its health effects. The episode highlights the indirect link between El Niño and pollution, through weather that leaves peatland easier to ignite and harder to extinguish.

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**El Niño and policy**
Policymakers now have another issue to grapple with, on top of the energy supply shock from the Middle East, global geopolitics and domestic pressures. El Niño raises concerns ranging from food security, given the adverse supply shock, to water security, given drought-induced rainfall shortfalls. It also complicates inflation management as food prices rise, and adds demands for mitigation against hotter and drier conditions. For the more agriculture-reliant economies, the impact could be a double hit. Agriculture, forestry and fishing accounted for around 16% of nominal GDP in India in 2025, 13% in Indonesia and 12% in Vietnam (chart 6). These economies face a hit to growth as well as higher prices. To compound matters, food-driven inflation could force central banks to tighten policy further, adding to the growth cost. 

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Asia

Economic Letter from Asia: Food for Thought

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Nonfarm payroll employment rose 29K in September, notably below the expected increase of 85K. Moreover, results in the prior two months were revised lower by 60K, with adjustments in July and August contributing about equally. The new figures left the average monthly increase so far this year at 68K, an improvement from the average of 10K in 2025 but light relative to historical norms.

By industry, construction and manufacturing performed reasonably well with gains of 11K and 9K, respectively. These sectors were decidedly weak last year, but they have posted gains in most months this year (average advances of 10K and 8K year-to-date). Retail trade is another area that is improving this year after a poor performance in 2025. Retailers added 6K jobs in September, but combined results in the prior two months were revised lower by 14K (still up year-to-date with an average monthly gain of 7K). The business service sector also is on a recovery track this year, but September brought a notable setback: employment fell by 9K and results in July and August were revised lower by 36K (still up year-to-date, 12K on average).

Three areas were weak last year and remain on soft paths so far this year. The information sector lost an average of 4K jobs per month last year and is cutting at an average pace of 11K so far this year. This is a broad area, encompassing firms involved in movie production, broadcasting, publishing, libraries, and tech-related areas; all have been soft. The financial service industry did little hiring last year (fewer than 1K jobs per month), and it has cut at an average rate of 12K per month so far this year. Government employment fell at an average rate of 15K last year and 2K so far this year. The federal government has led this retreat in employment, but state governments trimmed payrolls last year and have continued to do so this year. Local governments have made only modest additions to payrolls since mid-2025.

The unemployment rate reportedly rose 0.1 percentage point to 4.2%, but if calculated with more precision, the change was less than 0.1 percentage point (4.176% vs. 4.141%). In addition, it was a benigh increase in joblessness in that the labor force expanded solidly (485K), but employment as measured by the household survey rose by a slightly smaller amount (406K). The broad unemployment rate (the U-6 measure) fell 0.1 percentage point to 7.6%. The number of individuals working part-time involuntarily rose in September, but this increase was offset by a drop in the number of individuals marginally attached to the labor force. (Marginally attached individuals are defined as those that would like a job and have looked in the past 12 months but have not searched in the past four weeks.)

Average hourly earnings rose 0.1% in September, lighter than the expected increase of 0.3% and a reading in the low end of the recent range. The year-over-year change of 3.0% continued a downward trend that began in 2022 (chart, below left). Many observers have noted that wage growth is no longer keeping pace with inflation. This is true, although the differential has not been large and it followed gains in purchasing power by working individuals in the prior few years (wages did trail inflation during the burst in 2021-22). The relationship between wage growth and inflation waxes and wanes over time; from a long-term perspective, wage growth has bested inflation more often than not. 


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- Disappointing change in nonfarm payrolls
- Marginal increase in unemployment
- Modest increase in average hourly earnings


September Employment Report

Andrew Cates

**One Direction**
The October Blue Chip Financial Forecasts survey marks a shift in tone more than in central expectation. Growth is still holding up and recession is not what the panel expects, though the probabilities attached to Europe remain well above those for the United States. What has changed is the inflation side of the balance. A large majority of panelists now regard inflation as the greater risk (compared with growth), in the US and beyond it, and twelve-month interest-rate paths have been revised up accordingly. Japan has become a more prominent part of the global tightening story, with its policy rate now expected to move furthest over the coming year. The Bank of England is expected to move least. But the direction of travel is the same everywhere, and that is itself a change from the survey compared with a few months ago.

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**Hiring for the Machine**
Demand for artificial-intelligence skills has spread well beyond the economies most closely associated with the technology. Canada stands out, with the share of job postings mentioning AI now roughly double the UK’s and well above the American figure. That comparison requires care. Because these are shares of total vacancies, the gap may reflect faster growth in non-AI postings in the United States, rather than stronger absolute demand for AI skills in Canada. Differences in the composition of vacancies also matter, while postings measure hiring intentions rather than actual employment. Even so, the prevalence of AI-related vacancies outside the United States suggests that the technology’s diffusion is not confined to the economies attracting the most investment.

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**A Favourable Combination**
World industrial production has been accelerating through the first half of this year while core consumer price inflation across the G7 has continued to drift lower. A demand-led expansion would not usually produce that combination; it would push both series the same way. Starting positions matter here. Output is accelerating from a weak base, so the growth rates flatter the recovery in levels, and inflation has been falling from a rate that sat well above most central bank targets. Nor are the two measures strictly comparable. Industrial production captures a narrow and unusually cyclical slice of activity, while core inflation excludes the energy costs that have done most to unsettle markets this year. The timing is also ambiguous, since prices respond to activity with a lag long enough that the recent divergence may yet close. Still, a more natural reading could be that effective supply has been improving, whether through fuller use of existing capacity or early returns on the investment now under way.

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**The Capex Cycle Has Turned**
Real capital goods orders across the United States, Germany and Japan have now been rising for well over a year, and annual growth is close to its strongest since the post-pandemic rebound. Composition matters as much as the growth rate. Data centres and the electrical equipment that serves them account for part of it, but so do defence programmes, grid investment and the reshoring of supply chains, which are being driven by security considerations and are correspondingly insensitive to the cost of capital. In volume terms, orders remain below their 2021 levels, which suggests a cycle that is established but not yet mature. Upswings of this kind have historically run for several years once they take hold.

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**Pay Without Pressure**
Pay growth has roughly halved since 2023 in the United States, the euro area and the United Kingdom, three labour markets with very different bargaining structures and degrees of centralisation. That common path is striking, and it has been achieved without a sharp rise in unemployment. The temptation is to credit restrictive monetary policy, but the absence of any material loosening in employment argues against it. A demand-restraint channel operating with this much force should have left a clearer mark on jobs. The simpler explanation is that pay was catching up with an inflation shock and has fallen back as that shock has faded, helped by a recovery in labour supply and by an adjustment that has run through vacancies rather than through headcount. Whatever the cause, the consequence is the same. Where firms are producing more without employing proportionately more people, unit labour costs fall, margins hold and the inflationary consequences of resilient demand are muted. That is the condition on which the current configuration rests, and it is the first thing that would change were capacity to become binding.

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**The Price of Power**
Industrial electricity prices in the Middle Atlantic region in the United States, where data centre capacity is most heavily concentrated, have pulled steadily further away from those in Texas over the past two years. A regional premium is not evidence of a national energy shortage, and such differences have always existed. What it does perhaps indicate is where the physical limits bite first. Digital capital can be installed in months; generating plant, transmission lines and grid connections cannot, and the permitting queues are long. Should the cost of power in the places where the boom is being built keep rising faster than elsewhere, the productivity gains will be absorbed by the energy bill rather than showing up in lower costs or wider margins. The favourable part of this expansion is real enough. But it is a phase, and the grid is where its limits will be tested first.

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Long-dated US Treasury yields climbed again this week to levels last seen before the financial crisis. Crude oil prices in the meantime eased into the quarter-end as Middle Eastern exports recovered, though Brent will still likely close September higher than it began, and equity markets have absorbed the move in bonds without much difficulty. Forecasters have followed these market moves rather than resisted them. The latest Blue Chip Financial Forecasts survey suggest that policy rates are now expected to be higher in twelve months' time in every major economy, with Japan moving furthest and the United Kingdom least (chart 1). The difficulty is that this repricing is taking place against a world economy that is arguably performing better than a tightening cycle would ordinarily permit. Demand for artificial-intelligence skills is rising in labour markets well beyond the United States (chart 2), world industrial output has accelerated even as core inflation across the G7 has fallen (chart 3), and capital goods orders across the G3 have turned decisively higher (chart 4). Wage growth has slowed in three very different labour markets of late without the increase in unemployment that earlier disinflations demanded (chart 5). Such a combination is rare, and it rests on conditions that may not hold. The constraint that eventually binds could be more physical than monetary, and it is already apparent in the cost of electricity in the regions where the data centres are being built (chart 6).

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Charts of the Week: A Benign Phase

Winnie Tapasanun

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The ISM U.S. manufacturing PMI unexpectedly dipped to 54.5 in September from 54.6 in August and 55.6 in July, according to data from the Institute for Supply Management. The September reading, above the 50 expansion-contraction threshold, indicated the U.S. manufacturing sector expanded for the ninth consecutive month, albeit at a marginally slower pace. A reading of 55.0 for September had been expected in the Action Economics Forecast Survey. The latest manufacturing PMI, while above a contractionary 48.9 in September 2025 and a low of 47.0 in October 2024, remained below a peak of 63.8 in March 2021.

The production index declined to 56.7 in September from 58.3 in August, indicating production expanded for the 11th straight month but at the slowest rate since June. The index was above a low of 44.8 in April 2025 but below a peak of 66.5 in March 2021. In September, 25.4% (NSA) of respondents reported higher production while 11.9% reported lower production. The new orders index rebounded to 55.3 in September from 53.7 in August (the lowest reading since March), signaling new orders grew for the ninth consecutive month following four successive months of contraction. The index remained well above a low of 41.8 in January 2023 but below a high of 67.0 in May 2021. In September, 23.4% (NSA) of respondents reported higher new orders while 15.5% reported declines. The inventories index fell further to 48.6 in September—the first contraction since May and the lowest level since March—from 50.6 in August, returning to the broader contractionary trend in place since May 2025. The index was below a high of 52.7 in March 2025 but above a low of 43.8 in October 2024. Meanwhile, the supplier deliveries index edged down to 59.0 in September from 59.3 in August, indicating slowing delivery performance for the 10th straight month after faster deliveries in November 2025. In September, 21.4% (NSA) of respondents reported slower delivery speeds while 3.4% reported faster speeds.

On the labor front, the employment index rebounded to 52.7 in September from 51.2 in August, showing employment expanded for the third consecutive month, at a stronger pace, following 33 months of contraction. The index was above a low of 44.1 in November 2025 but below a high of 56.5 in March 2022. In September, 15.3% (NSA) of respondents reported higher employment while 14.5% reported lower hiring.

On the pricing front, the prices paid index advanced to 77.9 (NSA) in September from 71.1 in August and 71.1 in July, indicating raw materials prices rose for 24 months running and at the fastest rising pace since May. The index remained well above a low of 39.4 in December 2022 but below a high of 87.1 in March 2022 and a peak of 92.1 in June 2021. In September, 58.6% (NSA) of respondents reported higher prices while only 2.8% reported price declines.

In other ISM series not included in the composite index, the new export orders index decreased to 50.9 in September from 53.2 in August, indicating new export orders grew for the fourth time in five months, albeit at the lowest level since June’s contractionary 48.5. The index was up from a low of 40.1 in May 2025 but down from a peak of 57.1 in February 2022. The imports index slipped to 51.0 in September from 52.5 in August, suggesting imports expanded for the eighth successive month but at the weakest rate since April. The index was above a low of 39.9 in May 2025 but below a peak of 61.0 in June 2021. The order backlog index climbed to 56.4 (NSA) in September from 51.8 in August, showing backlog levels grew for the ninth straight month and at the fastest pace since February’s high of 56.6. The index was well above a low of 37.5 in May 2023 but below a peak of 70.6 in May 2021.

The ISM figures are based on responses from over 400 purchasing and supply executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These data are diffusion indexes where a reading above 50 indicates expansion; below 50 indicates contraction. The ISM Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes (seasonally adjusted) with equal weights: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- ISM Mfg. PMI down slightly to 54.5 in Sept.; ninth straight month of expansion.
- Production (56.7) lowest since June; still expanding for the 11th consecutive mth.
- New orders (55.3) growing at a faster pace; ninth successive mth. above 50.
- Employment (52.7) expanding for the third straight mth., at a faster rate, after 33 mths. of contraction.
- Prices Index (77.9) highest since May, indicating prices rising for 24 mths. running.
- Exports (50.9) lowest since June and imports (51.0) lowest since April; both still expanding.

U.S. ISM Manufacturing PMI Still Expansionary in September; New Orders & Employment Accelerating; Production Moderating

Jonathan Basile

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The U.S. Construction Spending report revealed total construction spending rose 0.9% month-over-month (MoM) in August following a 0.1% monthly decline in July. Over the last three months, nominal construction spending advanced at a 6.6% annualized rate, the best showing on this basis since March 2024. Near-term performance also pushed the six-month trend into positive territory (1.2% annualized) for the first time since February 2025. Recent traction, however, has not pulled the smoother year-over-year (YoY) rate out of the red. August’s -1.7% YoY figure extended the negative streak to 13 months.

Private construction (up 1.1% MoM, -3.1% YoY) accounted more of the headline advance than public construction (up 0.2% MoM). Half of the private construction gain was driven by home improvements (up 2.5% MoM). This component of residential construction has been volatile this year, so the sequential improvement is not an all-clear signal. In fact, home improvements’ August level is still about 8% below the 2026 high point (in March) and nearly 10% below the September 2025 cycle top.

Data centers drive one-third of private construction’s August increase on another strong monthly showing (up 7.5% MoM). The extraordinary AI-related expansion pushed the annual trend to a 73.2% YoY rate. Moreover, the data center share of private construction rose above 5% in August for the first time ever. The progression over the last three Augusts revealed a 1% share in 2023, a 2% share in 2024 and a 3% share in 2025. Construction spending on power facilities also has been swept up in the AI boom. August’s 0.9% MoM rise was the fifth straight, the longest stretch of gains in over a year. The momentum lifted the five-month annualized rate to 16.9% in August, the highest since December 2023. Recent improvement also supported the smoother YoY trend; the 9.7% annual pace was the best since June 2024.

Elsewhere in the private space, everything else was up modestly on the month (single-family and multifamily both up 0.2% MoM and nonresidential ex-data centers up 0.3% MoM). Even with the upticks, it did little to change the YoY trends that remain in negative territory (nonresidential ex-data centers -5.9%, single-family residential -3.5%, multifamily residential -0.6%).

The value of public construction spending continued its quiet gains, extending its winning streak to the six months ended August. On a YoY basis, public construction posted a 2.5% rate, the best performance in eleven months. Highway construction (up 0.1% MoM/4.4% YoY) has been a key support factor.

Construction spending, as it is denominated in nominal dollar terms, can be considered an aggregate budget measure for construction labor trends. Recent construction spending performance could be contributing to the acceleration in job creation in the sector, as reported by payroll provider ADP earlier this week. September’s 15,000 MoM advance for ADP construction payrolls was the best showing since March’s 32,000 MoM increase. It also extended the construction jobs’ winning streak to nine months.

The construction figures can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

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- August headline gain narrowly based.
- Data center heat remains on.
- Public construction’s quiet gains continued.

U.S. Construction Spending: Home Improvement and Data Centers Drove Spending in August

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The U.S. Consumer Price Index (CPI) rose 0.6% month-over-month (MoM) in September. Historically speaking, how rare is a 0.6% MoM increase? Monthly gains of 0.6% or larger took place about 15% of the time in the postwar period; that number drops to a 3% hit rate since 2000. More recently, there were twelve occurrences in 2021 (after the COVID-19 pandemic) and 2022 (after Russia’s invasion of Ukraine). For 2026, besides September, there were two others at the onset of the Iran War in March and April 2026.

Energy was a big part of the sequential performance, while food was not. The CPI for energy increased 5.2% in September following a 2.1% rise in August. Gasoline was a significant mover, posted a 9.1% MoM advance. This accounted “for over half of the monthly all items increase,” according to the Bureau of Labor Statistics (BLS). The CPI food index registered a flat reading in September, the first unchanged reading since March. The tame showing was generated by a 0.1% MoM decrease in Food at home, the second monthly drop in the last three months, while Food away from home rose at a lesser 0.2% MoM after back-to-back 0.3% gains.

Core CPI, excluding food and energy, rose 0.3% MoM in September matching August’s rise. Price pressures were propped up by both core goods (up 0.3% MoM from 0.1%) and core services (up 0.4% MoM versus 0.3%). The 0.3% core beat market expectations for a 0.2% increase and lifted probably for a Fed rate hike at the October 28th meeting to 44% from last Friday’s low of 17%.

On a year-over-year (YoY) basis, CPI inflation came in at 3.7%, up from the prior month’s 3.4%. CPI has posted a YoY inflation rate above 3% for the last seven months ended September. This hasn’t happened since the seven months ended May 2024. Core CPI inflation edged up to 2.6% YoY in September from 2.4% YoY in August. While core remains in a down channel of lower highs and lower lows, it remained above the key 2% level for the 65th month running. The last time core CPI inflation had a string above 2% for a similar duration, it was the latter half of the 1990s.

Core services inflation is to blame as it stubbornly stayed north of the 3% mark in September (at 3.1% YoY). After persistent easing from the post-pandemic peak to the 2.9% YoY rates in January/February 2026, no further progress has been made to the downside. Core goods inflation, on the other hand, has grinded lower to 0.7% YoY rates in both August and September, less than half the 1.5% YoY figures reported in August and September 2025.

Shelter is a key reason why core CPI inflation isn’t back in line with the Fed’s target rate. When shelter is excluded from the core, the underlying inflation picture is tepid. September’s 2.0% YoY rate echoed August’s, and June’s and July’s respective 2.1% and 1.9% YoY rates averaged 2.0%. These non-threatening results present a compelling argument against Fed tightening over the balance of the year.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Energy drives headline gain.
- Food prices tame.
- Core shows underlying price pressures in both goods and services.

U.S. Consumer Price Index: Energy and Core Pressures Keep Fed Tightening Debate Active

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