United States economy: Resilient US labor markets and growth keep Nomura focused on inflation and a final December Fed hike

Overview

This weekly US macro update argues that labor-market resilience, solid activity and still-elevated inflation will keep the Federal Reserve restrictive. Nomura expects a technical reduction in reported core PCE inflation from annual revisions, but maintains its underlying view of a final December 2026 rate hike and gradual inflation moderation from 2027.

Core views

Nomura expects September headline nonfarm payrolls to increase by 130k after August's 162k gain, with historical patterns pointing to an upward revision to the August figure. Its forecast for the unemployment rate is 4.0%, down from 4.1% in August and the lowest since January 2025. Weekly ADP employment has accelerated, continuing claims declined through the payroll reference week, business surveys indicate headcount expansion across manufacturing and services, layoffs remain subdued, and private-sector measures suggest stronger job openings. The report also identifies September seasonality as support for its below-consensus unemployment forecast: since 2010, the unemployment rate has surprised consensus to the downside by about 12bp on average and did so in 11 of the past 16 years. Nomura attributes part of that pattern to a seasonal pickup in transitions from unemployment to nonparticipation around the start of the school year. A near-term risk is that expiry of temporary protected status work authorization could reduce labor supply, although Nomura does not expect a significant September drag. The report expects the BEA's 30 September annual PCE update to reduce July 2026 year-on-year core PCE inflation by roughly 15bp, from 3.34% to 3.19%. Methodological changes alone are estimated to lower the rate by about 16bp, while revisions to CPI and PPI source data and seasonal factors partly offset that effect. The projected methodological effect is smaller than Nomura's prior roughly 20bp estimate because upward revisions to PPI inputs for software and accessories prices offset some of the downward revision. Under the revised methodology, Nomura forecasts August core PCE inflation of 0.278% month on month and 3.30% year on year, slightly below the FOMC median projection of 3.4% for Q4 2026. Nonetheless, its medium-term inflation view is unchanged: core PCE should moderate gradually from 2027 as tariff and energy effects fade and softer wage growth restrains services inflation. Nomura interprets post-FOMC remarks as signaling further tightening without urgency for an October move. It sees New York Fed President Williams and Boston Fed President Collins as broadly consistent with one further hike this year, while Governor Barr and Kansas City Fed President Schmid appeared more hawkish. Philadelphia Fed President Paulson was relatively dovish, weighing no further hikes against one additional gradual move. With no participant apparently expecting a full-fledged hiking cycle, Nomura's baseline is for the Fed to pause in October and raise rates by a final 25bp in December, then hold through 2027. Resilient labor conditions are central to this conclusion because they keep the Fed focused primarily on inflation. Growth indicators remain constructive but not uniformly strong. The preliminary S&P manufacturing PMI rose to 57.0 in September from 53.9 in August, its highest since May 2022, while the services activity index rose to 58.7 from 56.5 and output expanded at its fastest pace in five years. Nomura cautions that regional Fed surveys weakened in both manufacturing and services, so it views activity as solid rather than accelerating as sharply as the S&P PMIs imply. Core nondefense capital-goods orders excluding aircraft increased 1.6% month on month after an upwardly revised 0.6% July gain, pointing to continuing equipment-investment momentum. Stronger shipments and upside housing data led Nomura to raise its Q3 GDP tracking estimate to 4.1% annualized from 4.0%, while real final sales to private domestic purchasers rose to 3.4% from 3.3%. For the coming data week, Nomura expects consumer confidence to ease to 86.8 in September from 89.4 as energy prices weigh on sentiment; JOLTS openings to decline to 7.225mn in August from 7.271mn; personal income growth to accelerate to 0.5% month on month; and personal spending to rise 0.9%, implying 0.6% real spending growth. It forecasts a modest narrowing in the August goods trade deficit to $115.0bn from $118.9bn, an ISM manufacturing reading of 55.4 from 54.6, and vehicle sales of 16.2mn SAAR after 16.8mn in August. Longer term, the report expects robust growth led by broadening business investment and resilient consumption, but sees inflation risks from energy prices, supply-chain disruption and rising technology-component prices. It forecasts Q4 2026 core PCE inflation of 3.3% year on year and expects the unemployment rate to decline gradually toward 3.9% by end-2027.

Analysis framework

Nomura combines high-frequency labor indicators, private employment data, jobless claims, job-opening measures, business surveys, official inflation-source revisions and economic-release forecasts. It cross-checks unusually strong survey signals against regional surveys, uses historical September unemployment-rate patterns to assess seasonal effects, and links labor, inflation and growth evidence to its Federal Reserve policy path.

Methodology notes

• Other

  Weekly data tracker based on principal component analysis

  Nomura estimates the first principal component from 13 daily and weekly US industrial and consumer indicators, then calibrates that latent factor to track four-quarter real GDP growth.

Key data

• September nonfarm payrolls forecast130kNomura forecast after a 162k August increase; August payrolls are expected to be revised higher.
• September unemployment-rate forecast4.0%Down from 4.1% in August; Nomura cites stronger labor fundamentals and favorable September seasonality.
• July 2026 core PCE annual revision-15bp to 3.19%Expected net effect of methodology, source-data and seasonal-factor revisions, from 3.34% currently.
• August core PCE forecast0.278% m-o-m; 3.30% y-o-ySlightly below the FOMC median 3.4% projection for Q4 2026.
• Q3 GDP tracking estimate4.1% q-o-q annualizedRaised from 4.0% the prior week; real final sales to private domestic purchasers were raised to 3.4% from 3.3%.
• September S&P PMIsManufacturing 57.0; services 58.7Up from 53.9 and 56.5, respectively, in August.
• Core capital-goods orders+1.6% m-o-m in AugustFollowed an upwardly revised 0.6% July increase and supports continued capex momentum.

Impact & implications

Nomura's combination of resilient employment, robust activity and inflation still above target supports a restrictive Fed stance despite a likely technical downward revision to measured core PCE inflation. The institution expects the policy debate to center on whether inflation progress is sufficient to avoid its forecast final December hike.

Risks

• Expiry of temporary protected status work authorization could contract labor supply, although Nomura does not expect a significant September effect.
• A lack of forward guidance, muddled commentary from Chair Warsh and renewed political pressure on FOMC participants could undermine Fed inflation-fighting credibility and trigger a sharp market reaction.
• Further geopolitical escalation could tighten financial conditions and worsen the fiscal outlook.
• A bust of the AI boom could cause a material asset-price correction and weaken business investment.
• AI-driven memory-chip shortages and supply-chain disruption from a protracted Iran war could create a second round of goods inflation.

What to watch

• September nonfarm payrolls, unemployment, average hourly earnings and the revision to August job gains.
• The 30 September BEA annual PCE update and its effect on core PCE inflation.
• Federal Reserve communications for evidence on an October pause and a possible December hike.
• Energy prices, Middle East tensions and supply-chain pressures that could sustain inflation.
• Business-investment, consumer-spending and regional-survey data for confirmation of the growth outlook.