US equities bounce back
United States (US) stock markets rebounded on Friday, snapping a three-day losing streak, helped by an in-line inflation report and stronger-than-expected consumer spending. With two full trading sessions remaining before the month and quarter end, the US Tech 100 (Nasdaq 100) is up 4.65% month-to-date (MTD) and 8.05% quarter-to-date (QTD), while the US 500 (S&P 500) is up 2.84% MTD and 7.07% QTD. The Dow Jones is more modestly higher, up 1.54% MTD and 4.88% QTD.
Inflation and spending data uplift sentiment
Friday’s data showed the Federal Reserve’s (Fed) preferred measure of inflation, the core personal consumption expenditures (PCE) price index, rose by 2.9% year-on-year (YoY) in August, in line with consensus forecasts, supporting expectations of a Fed rate cut in October. At the same time, real personal spending in August surprised to the upside at 0.4% month-on-month (MoM), with continued strength in discretionary categories, such as recreational goods and services, reflecting a resilient US consumer.
The strong spending data, combined with last week’s upward revisions to second-quarter (Q2) gross domestic product (GDP) to 3.8%, provides a higher starting point for third-quarter (Q3) GDP, which according to the latest Atlanta Fed GDPNow forecast is tracking at a robust 3.9%.
The next key test of the US economy will come Friday with the September non-farm payrolls report, though its release could be affected by whether Congress passes a new spending bill or a short-term continuing resolution (CR) by the end of September. If neither is passed, the government would face a shutdown, the first since 2018. A shutdown is distinct from the debt ceiling issue and does not imply a sovereign default. Short shutdowns typically have minimal market impact, but a prolonged lapse in appropriations could delay economic releases, potentially including the 3 October non-farm payrolls report.
US non-farm payrolls
Date: Friday, 3 October at 10.30pm AEST
In August, non-farm payrolls increased by just 22,000 – well below the upwardly revised 79,000 in July and market forecasts of 75,000. The unemployment rate rose to 4.3% from 4.2%, matching expectations and marking the highest jobless rate since October 2021. A few days later, the Bureau of Labor Statistics’ (BLS) annual benchmark revisions showed the US economy added 911,000 fewer jobs in the 12 months through March 2025 than initially reported.
The combination of softer labour-market data contributed to the Fed decision to deliver a 25 basis point (bp) rate cut in mid-September. Fed Chair Jerome Powell’s prepared remarks at the September Federal Open Market Committee (FOMC) meeting were more dovish than prior statements, highlighting downside risks to employment and signalling further cuts ahead. However, his tone in the Q&A was noticeably more cautious. He described the Fed cut as a ‘risk management’ move and noted that Summary of Economic Projections (SEP) projections for growth had ticked up.
Powell’s cautious Q&A and last week’s stronger economic data have caused the market to temper expectations for aggressive rate cuts. Markets now price roughly 42 bp of cuts by year-end and about 100 bp cumulatively through to the end of 2026.
For September, the preliminary consensus is for the US economy to add about 50,000 jobs, with the unemployment rate remaining at 4.3%.