Marcoeconomic Overview: Recent activity in bond markets has refocused attention on inflation and interest rates ahead of the next Federal Reserve meeting on September 16. The last time the Fed cut rates was in December 2025. The last time the Fed lifted rates was in July 2023. With the rise in bond yields, expectations that the central bank will maintain or raise rates may have increased.
The latest data on the labor market, which were stronger than generally expected, may have reduced concerns about weakness in the employment portion of the Fed’s dual mandate. Meanwhile, the core measure of inflation (price index based on personal consumption expenditures) that the Federal Reserve tracks to help determine policy has been near 3.3% since March. The Fed’s official target for that measure is 2.0%. Since the surge in inflation that occurred after COVID, the lowest monthly reading is 2.6% (April 2025). With the latest inflation figures above that level, there may be motivation to keep monetary policy restrictive in pursuit of price stability.
Officials with the Fed have stated they believe the factors that contributed to the latest rise in inflation, including tariffs and higher energy prices, are already incorporated into inflation rates and may not be sources of significant additional price pressure. These competing considerations could support a decision not to increase rates in September and introduce uncertainty around the immediate direction of monetary policy.
Tariffs are another variable that could influence both inflation and the outlook for interest rates. There were two Section 301 investigations that were launched in March. Only one of those, the one focusing on the issue of forced labor, has had its findings released and it was used to justify tariffs in late July. Another topic of investigation was excess capacity. Those findings have not been released yet. When the report is published, it may be leveraged to support another round of tariff increases.
Employment: The U.S. economy is estimated to have added 162,000 jobs in August. This is the highest reading since May and represents a sharp reversal from the 23,000-job loss that was initially posted for July. Revisions to existing figures were positive. The figure for July increased from a 23,000-job loss to a 21,000-job gain. The figure for June increased from a 20,000-job gain to a 30,000-job gain. The current 12-month average for job gains is 50,250 (September 2025-August 2026). There was no month-over-month change in the unemployment rate, which held at 4.1%. Excluding the volatile period around COVID, the rate has been below five percent since 2016. This is the longest sub-5.0% stretch since records began in 1948 – longer than the multi-year periods in the early 1950s, the late 1960s, and the late 1990s. Wages increased 3.1% year-over-year in August. Excluding the volatile months around COVID, this is the lowest reading since 2019. The move lower in August is part of the downward trend that has been in place since May 2022, when post-pandemic wage growth was 5.9%. With slower wage growth and rising prices, real wage growth has been under pressure. In every month since April, the year-over-year change in the overall CPI has been larger than the change in wages.
Consumer Confidence & Spending: The Conference Board’s Index of Consumer Confidence® decreased slightly (-0.8 points) to 89.4 in August. This reading is slightly below the 90–100 range that has generally prevailed over the past 12-months. Over the longer term, and excluding pandemic-related volatility, the index has followed a downward trend since 2018. In 2018, and extending through early 2020, values were consistently above 125.
Overall consumer spending (inflation-adjusted) was flat month-over-month in July. Year-over-year, overall spending was up 2.1%, which is near the average over the past twelve months (2.2%). Spending on garments (inflation-adjusted) was down 0.1% monthover- month, but it was up 2.8% year-over-year. This rate of annual growth in garment spending is weaker than what has been posted in recent months (12-month average is 5.2%) but is still higher than the long-term average (near two percent).
Consumer Prices & Import Data: After a string of month-over-month increases between August 2025 and May 2026, the CPI for apparel decreased 0.6% in June and was flat in July. Following this extended period of increases, recent clothing prices have been about four percent higher year-over-year and have climbed to the highest levels since the late 1990s (nominal terms).
The average cost per square meter equivalent (SME) of cotton-dominant apparel was unchanged month-over-month from June to July (at $3.71/SME, seasonally-adjusted). In seasonally-adjusted terms, prices have generally held near recent values since 2023. These import costs are about 12% higher than the costs per SME that were common before the pandemic and do not include any tariffs. After shifting higher in late 2024 and into early 2025, cotton-dominant apparel import volumes turned lower around the second half of 2025. In July, SME volume was down 11.4% year-over-year. In May (3.6%) and June (0.2%), import volumes were higher yearover-year. Over the past 12-months, shipments were down 7.9% year-over-year, which may reflect greater sourcing caution with higher costs despite continued growth in consumer apparel spending.
