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- Initial jobless claims fell last week and continuing claims moved lower, though July payrolls contracted, leaving a mixed picture of labor market conditions.
- July inflation held near recent levels, with the core reading still running well above the Federal Reserve’s (Fed’s) 2% target.
- Consumer confidence slipped for a second straight month in August, as households grew more cautious about the near-term outlook.
1. Jobless Claims Hold Near Low Levels as Layoffs Stay Limited
Initial claims for unemployment benefits declined to 203,000¹ last week, below expectations of 210,000.² Continuing claims, which capture the total number of people actively receiving benefits, also moved lower, falling to 1.78 million¹ against forecasts of 1.79 million.²
Together, the claims figures suggest that layoff activity remains contained. Hiring, however, has slowed from the pace seen earlier this year, and July payrolls contracted by 23,000,³ the weakest monthly print of the year.
The unemployment rate currently stands at 4.1%,³ modestly below the Fed’s longer-run projection of 4.2%.⁴ That longer-run figure is widely viewed as the central bank’s estimate of full employment. With the unemployment rate near the Fed’s longer-run projection, officials may have room to focus more on inflation, which remains well above the 2% objective.⁴
In our view, policymakers may be inclined to raise rates later this year or in early 2027. At a minimum, in our view, last week’s data support a higher-for-longer policy approach.
2. Inflation Steady in July as Core Prices Stay Elevated
Headline personal consumption expenditures (PCE) inflation rose 3.7%⁵ year-over-year in July, slightly above the 3.6% consensus estimate² and unchanged from the prior month. Core PCE inflation, which excludes volatile food and energy prices, was 3.3%,⁵ matching both forecasts² and the prior month’s reading. Core PCE is often considered the Fed’s preferred inflation gauge, and it remains well above the 2.0% target.⁴
The underlying contributors to the inflation index showed a familiar split. Goods inflation declined 0.1%⁵ for the month, driven by lower gasoline and energy-related prices and a drop in household equipment. Services inflation moved in the opposite direction, rising 0.3%,⁵ as costs climbed in categories including financial services, insurance, and housing.
In our view, the persistence of core inflation strengthens the case for a Fed rate increase. That said, we expect upcoming Consumer Price Index (CPI) data and additional labor market releases to serve as critical inputs ahead of the September 16th FOMC meeting.⁶
3. Consumer Confidence Slips as the Forward Outlook Softens
The Conference Board’s Consumer Confidence Index declined for a second consecutive month in August, falling to 89.4⁷ and landing below the consensus forecast of 90.2.²
The direction of the underlying components was mixed. Consumers’ assessment of current business and labor market conditions improved by 6.8 points,⁷ reversing three straight monthly declines. The short-term outlook for income, business, and labor conditions moved the other way, falling 5.8 points.⁷ Written responses indicated that concerns about the economy centered on prices and inflation, geopolitical tensions, trade, and jobs.⁷
That divergence between steadier views of the present and a softer forward outlook may suggest that households feel reasonably comfortable with their current circumstances but are growing more cautious about the months ahead.
Caution of this kind can eventually weigh on consumer spending, which accounts for the majority of economic activity. We believe a balanced labor market, combined with further progress on reducing inflation, would help sentiment recover over time.
Looking Ahead
- ISM Manufacturing PMI – Tuesday, September 1st
- Federal Reserve Beige Book – Wednesday, September 2nd
- August Employment Situation – Friday, September 4th
Why It Matters
On Tuesday, the Institute for Supply Management will release its August manufacturing survey, and the prices paid component, which has been elevated, is likely to draw the most attention. Another firm prices-paid reading could reinforce the view that cost pressures extend beyond the services categories that drove July’s inflation data.
Wednesday brings the Federal Reserve’s Beige Book, which arrives two weeks ahead of the September 16th FOMC meeting⁶ and represents the last broad qualitative read on regional conditions before policymakers convene. Commentary on hiring plans, wage trends, and the ability of firms to pass costs to customers will carry particular weight.
Friday closes the week with the Bureau of Labor Statistics’ August employment report. As noted above, July payrolls contracted while the unemployment rate held at 4.1%.³ A second negative reading would sit uneasily against jobless claims data that continue to point to limited layoffs. Together, these three releases should shape expectations heading into the September meeting.
For the period ending 8/28/26.
*Small-cap stocks are represented by the Russell 2000® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.
Sources
1 U.S. Department of Labor, Employment and Training Administration, Unemployment Insurance Weekly Claims News Release, August 28, 2026
2 Bloomberg L.P., Economic Calendar (ECO), Median Economist Survey Estimates, accessed August 28, 2026
3 U.S. Bureau of Labor Statistics, The Employment Situation, July 2026
4 Federal Reserve Board of Governors, Summary of Economic Projections, June 2026
5 U.S. Bureau of Economic Analysis, Personal Income and Outlays, July 2026, August 28, 2026
6 Federal Reserve Board of Governors, FOMC Meeting Calendar, 2026
7 The Conference Board, Consumer Confidence Index, August 25, 2026
Disclosures
Cary Street Partners is the trade name used by Cary Street Partners LLC, Member FINRA/SIPC; Cary Street Partners Investment Advisory LLC and Cary Street Partners Asset Management LLC, registered investment advisers. Registration does not imply a certain level of skill or training.
Any opinions expressed here are those of the authors, and such statements or opinions do not necessarily represent the opinions of Cary Street Partners. These are statements of judgment as of a certain date and are subject to future change without notice. Future predictions are subject to certain risks and uncertainties, which could cause actual results to differ from those currently anticipated or projected.
These materials are furnished for informational and illustrative purposes only, to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. Materials have been compiled from sources believed to be reliable; however, Cary Street Partners does not guarantee the accuracy or completeness of the information presented. Such information is not intended to be complete or to constitute all the information necessary to evaluate adequately the consequences of investing in any securities, financial instruments, or strategies described herein.
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We undertake no duty or obligation to publicly update or revise the information contained in these materials. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of securities, or information about the market, as indicative of future results.
Nothing contained herein should be considered a solicitation to purchase or sell any specific securities or investment-related services. It should not be assumed that any of the securities transactions or holdings discussed were, or will prove to be, profitable.
The Personal Consumption Expenditures (PCE) Price Index measures the change over time in prices paid by U.S. consumers for goods and services. Published monthly by the Bureau of Economic Analysis (BEA), it is the Federal Reserve’s preferred measure of inflation and is used to assess progress toward the Fed’s 2% inflation target. The PCE Price Index differs from the Consumer Price Index (CPI) in its scope, weighting methodology, and treatment of certain healthcare expenditures; it generally registers a slightly lower inflation rate than CPI.
The Core Personal Consumption Expenditures (PCE) Price Index measures inflation in consumer spending after excluding food and energy prices, which tend to be more volatile. Published monthly by the Bureau of Economic Analysis (BEA) alongside the headline PCE, Core PCE is closely monitored by the Federal Reserve as a signal of underlying, persistent inflation trends. Because it strips out short-term price fluctuations in commodities and fuel, it is considered a more stable indicator of the direction of inflation over time.
The PCE Price Index family includes both the headline Personal Consumption Expenditures Price Index and the Core PCE Price Index, published monthly by the Bureau of Economic Analysis (BEA). The headline index captures price changes across all goods and services consumed by U.S. households; the core variant excludes food and energy to isolate underlying inflation trends. Together, these measures serve as the Federal Reserve’s primary inflation benchmarks in evaluating monetary policy, including decisions regarding the federal funds rate target.
The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending. The CPI is a measure of inflation and deflation. The CPI report uses a different survey methodology, price samples, and index weights than the producer price index (PPI).
Additional Disclosures: International and Foreign Securities, Fixed Income Investments, the Consumer Price Index, the Producer Price Index
Comparative Index Descriptions: The Standard & Poor’s (S&P) 500 Index, The Russell 2000® Index, The NASDAQ Composite Index, The MSCI EAFE Index, Dow Jones Industrial Average® (Dow Jones or DJIA), The Bloomberg Barclays US Aggregate Bond Index (US Agg Bond), The CBOE Volatility Index (VIX).
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