US economy sends mixed signals weeks before midterms
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US President Donald Trump speaks to the press after a meeting with technology executives about artificial intelligence at the White House in Washington, DC, on September 29, 2026. Photograph: (AFP)
US growth is stronger than expected, but inflation, borrowing costs and weaker consumer confidence point to a mixed economic picture before the midterms.
Five weeks ahead of the midterm election, the US economy is sending mixed signals. Growth and hiring are holding up; inflation is cooling slightly, with a change in calculation methodology, but remains elevated; and borrowing costs are at levels not seen in nearly two decades. US consumer confidence in the economy fell by 6.7 points to 81.9, down from 88.6 in August.
“It’s bluster, it’s gaslighting for him to say the economy is the greatest ever,” said Darrick Hamilton, chief economist for the AFL-CIO, the nation’s main union federation.
GDP growth was higher than expected for the quarter
US GDP grew at a solid 2.2% pace from April, up from 1.5% in the second estimate, with consumer spending, investment, and exports as the main contributors. Gross domestic income, a separate measure of output, rose 2.6%.
Consumer spending accounts for 70% of U.S. economic activity. Business investment, excluding housing, rose 9% in the second quarter, reflecting the AI investment boom. According to the late-September S&P Global France Manufacturing PMI report, the manufacturing index fell slightly to 50.3 in September from 51.1 in August. Since 50 is the line for separation from contraction, manufacturing remains flat, despite a wartime production boost.
“The economy is increasingly reliant on AI gains and the corresponding wealth effects boosting higher-income households’ spending power to fuel recent growth,” said Michael Pearce, chief U.S. economist at Oxford Economics, as quoted by the Associated Press. “The economy remains sensitive to a sudden reversal of optimism on AI.’'
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Jobs and inflation
Private employers added 90,000 jobs in September, according to ADP, beating expectations of about 68,000. However, ADP data is not official Bureau of Labour Statistics data. Friday's BLS jobs report would provide further details on the job market, where forecasts range from 38,000 to 98,000.The Wall Street consensus is for a gain of 84,000 jobs, down from a 162,000 increase the prior month, and the unemployment rate to hold steady at 4.1%, partly driven by shrinking labour supply and discouraged workers withdrawing from the labour pool.
August PCE inflation, the Fed's preferred gauge, came in cooler than forecast: 3.4% headline and 3.0% core, both well above the Fed's 2% target. CPI held at 3.4%. The PCE calculation had undergone a bureaucratic methodology change rather than a sudden cooling of actual economic price pressures. The BEA altered how it calculates inflation for three specific categories back to 2021: computer software, legal fees, and investment advice and artificially shed an estimated 0.3 percentage points directly off the core inflation rate.
What does it mean for the midterm?
Supporters of Trump can point to the GDP upgrade and cooler-than-expected inflation. Democrats will point to prices still rising at over 3%, mortgage and loan costs at multi-year highs, and an oil shock tied to the Iran war. Voters usually judge the economy by their own budgets. According to the BLS, over the last 12 months, fuel oil prices have soared 52%, while ground beef is up 7.2%, fish and seafood up 6.5%, coffee 6.1%, sugar and sweets 6.1% and electricity up 3.8%. So high price levels and borrowing costs may outweigh better headline numbers.
