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Businesses Steady, Households Strained*
Week of October 5, 2026
This was a quieter week than the last two, and the split inside the economy came into sharper focus. Businesses kept growing: the services sector, the largest part of the economy, expanded for a 27th month, and layoffs stayed near their lowest levels in years. Households told a different story. Consumers' view of their current finances fell to the lowest reading in the history of the University of Michigan survey. Stocks set a new record early in the week, stumbled on news about one of the largest artificial intelligence companies, and finished higher. Long-term interest rates touched their highest level since 2002 on Monday, then eased.
The week in brief
- The services sector kept growing, though a little more slowly than in August. Hiring in services edged back into expansion.
- Weekly unemployment claims stayed under 200,000, close to the lowest in years.
- Consumer sentiment fell to its lowest since May, and the measure of how households feel about their current finances hit a record low. Lower-income households took the biggest hit.
- Households' expected inflation over the next five to ten years rose to 3.5%, while the bond market's measure of expected inflation fell.
- Credit card and other revolving borrowing shrank in August, even as spending rose. Households used savings, not borrowing, to keep spending.
- The 10-year Treasury yield touched about 5.36% on Monday, the highest since 2002, then ended the week at 5.24%. Large government bond auctions found solid demand.
- Odds of a Fed rate increase in October slipped to about 18%. A December increase is priced at roughly 84%: likely, but not certain.
- Oil rose modestly as attacks on tankers near the Strait of Hormuz reached their highest level of the war. Diesel prices fell for a second week.
- Stocks rose about 1.2% after a record on Tuesday. Energy, consumer staples, utilities and health care led; technology lagged.
- Our internal conditions gauge fell to +7.46 from +8.96, still higher than about 95% of the past four years.
- What matters next: inflation on Wednesday, October 14 and the Federal Reserve decision on Wednesday, October 28.
Two economies in one
The services survey came in close to expectations. Activity cooled from a strong August, but new orders stayed solid and employment moved back into growth. A separate business survey showed the fastest services growth in more than five years. Weekly unemployment claims held just under 200,000.
The household side looked very different. The University of Michigan's October survey showed overall sentiment at its lowest since May, and households' assessment of current conditions at the lowest level the survey has ever recorded. The decline was concentrated among lower-income families and those with fewer stock holdings: the people with the least cushion against high prices.
Borrowing data point the same way. Credit card and other revolving balances fell in August, at a time when spending rose strongly. Combined with last week's news that the saving rate fell, the picture is of households drawing down savings rather than taking on debt to keep spending. That can continue for a while, but not indefinitely. We are watching whether spending slows to meet incomes in the coming months.
Inflation expectations: households and markets disagree
Households now expect inflation of 4.7% over the next year and 3.5% a year over the next five to ten years, both up from September. Measures drawn from the bond market moved the other way this week, edging lower.
Survey expectations tend to follow prices people see every week, such as fuel and groceries, more closely than bond markets do. Next Wednesday's consumer inflation report will show which reading the data support. Business surveys this week showed companies paying sharply higher prices for their inputs, which keeps that question open.
Long-term rates found buyers
The 10-year Treasury yield reached about 5.36% during Monday's trading, its highest level since 2002. By Friday it had eased to 5.24%, and the 30-year yield to 5.60%.
The test of the week was supply. The Treasury sold $39 billion of 10-year notes and $22 billion of 30-year bonds. The 30-year sold at a yield of 5.62%, the highest for that auction since 2000, and demand was solid, including from overseas buyers. Investors are still asking to be paid more to lend to the government for long periods. This week showed they will lend at these levels.
For households, mortgage rates follow these long-term yields. The average 30-year mortgage rate rose to 7.40%, its highest since November 2023 and the seventh weekly increase in a row. The weekly survey captured rates before Friday's easing.
The Fed: a pause in October looks more likely, December still in play
Minutes from the Fed's September meeting showed the decision to raise rates was unanimous, and most officials expected another increase by year-end. Two officials spoke this week. One said further increases may be needed but need not come at back-to-back meetings. The other said the Fed should raise rates again.
Markets now see about an 18% chance of an increase on October 28 and about an 84% chance by December. The question is less whether the Fed raises rates again than when. Next week's inflation report is the last major data point before the October meeting.
Oil: more attacks, more oil getting through
Attacks on tankers near the Strait of Hormuz reached their highest level of the war, and oil rose on Thursday when a hurricane also shut some U.S. Gulf of Mexico production. Prices eased Friday after the administration said talks with Iran were productive and that it would not strike Iran before the November elections. Iran says it is reviewing the U.S. response to its proposal to reopen the strait.
Shipping data sources disagree about how much oil is moving. Counts of ships crossing the strait remain a small fraction of normal. Cargo-tracking data, which also follow escorted and less visible tankers, show exports running at roughly 60% to 70% of pre-war levels. We are reading these measures more carefully. Diesel prices fell for a second week as emergency reserves reached the market.
Stocks: a record, then a rotation
The S&P 500 set a record on Tuesday. On Thursday, a report that a leading artificial intelligence company's revenue was well below figures that had circulated sent technology and semiconductor stocks lower. The selling was narrow: the average stock rose that day. The index finished the week up about 1.2%, led by energy, consumer staples, utilities and health care.
What our internal gauge says
Our internal conditions gauge fell to +7.46 from +8.96, still higher than about 95% of the past four years.
One of the 67 measures changed. Natural gas prices and storage both crossed a level we had written down in advance: prices averaged just above $3 for a week while storage built more slowly than normal. The crossing was narrow, and the measure could move back if prices slip.
The rest of the gauge was unchanged. It reads business activity as broad and firm and hiring as stalled. The household side, which the gauge captures through sentiment and borrowing, is where the strain is building.
What we are watching
Monday, October 12 is a bond-market holiday. The Treasury's full-year budget figures are due.
Tuesday, October 13 brings the small-business survey and the start of bank earnings season.
Wednesday, October 14 brings September consumer and producer inflation, the last major report before the Fed meets.
Wednesday, October 28 is the next Federal Reserve decision.
Tuesday, November 3 is Election Day, and Wednesday, November 4 brings the Treasury's quarterly borrowing announcement.
This commentary is provided for informational and educational purposes only and does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation regarding any security, sector, or investment strategy. The views expressed reflect the opinions of Private Wealth Advisors as of the date written and are subject to change without notice. Information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Past performance is not indicative of future results, and all investing involves risk, including the possible loss of principal. Nothing contained herein should be construed as personalized investment, tax, or legal advice.
*The section titled "Businesses Steady, Households Strained" was drafted with the assistance of artificial intelligence tools under the direction and editorial review of Marty Mazorra, Chief Investment Officer of Private Wealth Advisors. All analysis, conclusions, and final content are his own.
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