A faster-growing economy is offering a mixed picture for voters heading into the midterm elections, with inflation rising, hiring sluggish and home loans remaining expensive. Economic figures released in the week leading up to Oct. 31 showed stronger overall activity, but little relief from the affordability concerns that have made the economy a leading election issue.
The Commerce Department reported September inflation at 3.6%, above both the previous month's level and the rate when President Trump returned to office. Paychecks are failing to keep up with rising living costs. Nearly two-thirds of Americans disapprove of Trump's handling of the economy, with inflation a major reason for that dissatisfaction. After voters penalized Democrats over prices in 2024, Republicans now face the possibility of a similar response.
The broader growth figures were more encouraging. Gross domestic product, the widest measure of economic activity, expanded at an annual rate of 3.4% during July, August and September, compared with 2.2% in the preceding quarter. Federal Reserve Chairman Kevin Warsh welcomed the figures, saying: “The economy is strong. The economy is pointing in the right direction.”
Much of that expansion, however, reflects large investments in artificial intelligence. Construction of data centers has generated activity, but the increase in output has not brought a comparable surge in employment. That gap helps explain why stronger growth figures can coexist with persistent concerns among workers about their financial circumstances.
Employers added only 29,000 jobs in September, and the October employment report is due in the coming week. Unemployment remained low at 4.2%, yet workers generally lack confidence that they could readily find another position if they left their current jobs. Their reluctance to move reduces the pressure on employers to offer higher pay, according to Mark Zandi, chief economist at Moody's Analytics.
Zandi described hiring rates as extraordinarily low and inconsistent with a healthy labor market. Wage increases have slowed, while September figures showed spending growing 2.5 times as fast as wages. Those trends leave households facing continued affordability pressures despite the stronger pace of economic expansion.
Housing is another source of strain. The Federal Reserve kept short-term interest rates unchanged at its meeting during the week, although borrowing costs could rise before the end of the year. Longer-term rates remain elevated, with the average rate on a 30-year home loan around 7.25%, discouraging prospective buyers.
Zandi had hoped mortgage rates would remain near 6%, a level he expected would support more home sales. Instead, fixed mortgage rates above 7% continue to weigh on a sector particularly sensitive to borrowing costs. Housing's contribution to GDP has been negative in eight of the past 10 quarters, adding another weak point to an otherwise expanding economy as closely contested midterm races approach.
