From the Desk - Economic Commentary
Scott Goedken, Institutional Strategies Director - 9/30/2026
The U.S. Bureau of Economic Analysis revised second-quarter economic growth sharply higher this morning, portraying a stronger economy than previously reported. Real GDP increased at a 2.2% annual rate during the second quarter, up from the prior estimate of 1.5%. The revision primarily reflected stronger consumer spending, business investment, and government spending. Real final sales to private domestic purchasers, a key measure of underlying domestic demand, were revised higher to 4.6% from 4.2%. The same benchmark revisions that boosted GDP also lowered previously reported inflation measures for the first half of the year. The second-quarter PCE Price Index was revised to 5.0% from 5.3%, while core PCE was revised to 3.3% from 3.6%. Taken together, the revisions suggest economic activity was stronger than previously estimated, while underlying inflation pressures were somewhat less severe than originally reported.
August Personal Income and Outlays data released this morning reinforced this narrative. Personal income increased 0.2%, while consumer spending rose 0.9% and real spending increased 0.6%. The personal saving rate declined to 4.1% from 4.3% in July. The PCE Price Index increased 0.3% during the month and 3.4% from a year ago, while core PCE rose 0.2% and 3.0%, respectively. Consumer spending continued to outpace income growth during August, while inflation readings remained broadly in line with expectations.
Additional data released this morning showed continued labor market resilience. The ADP National Employment Report reported a gain of 90,000 jobs in September, improving from August's revised increase of 36,000 jobs and exceeding consensus expectations. Education and health services added 55,000 jobs, while financial activities and professional and business services declined by a combined 27,000 jobs. ADP also reported annual base pay growth of 3.2%.
Financial markets responded positively to the morning's data. Major equity indexes opened higher, with the S&P 500, Dow Jones Industrial Average, and Nasdaq supported by softer-than-expected inflation data and upward revisions to economic growth. Treasury yields moved lower following the PCE report, reversing a portion of the recent rise in rates. The benchmark 10-year Treasury yield declined from recent multi-year highs as investors reacted to both the lower inflation readings and benchmark revisions to prior-period PCE inflation.
Mortgage rates continued to move higher this week. The Mortgage Bankers Association reported the average 30-year conforming mortgage rate increased to 7.30% from 7.12% the previous week, while Mortgage News Daily reported rates reached 7.58% on Tuesday, the highest level since November 2023. Purchase applications declined 4% during the week and were 14% lower than the same week one year earlier, reflecting the combined impact of higher mortgage rates and continued home price appreciation. Refinance applications fell 9% during the week and were 56% lower than a year ago, as relatively few borrowers stand to benefit from refinancing at current interest rate levels.
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