Trend watch
Business travel is ramping up with fall trade show season. Air traffic jumped 3.5% in past week to 17.0 million passengers. That’s roughly halfway to the 1.1 million passengers we projected, which should get the weekly counts to around 17.5 million by month end.
Similarly, hotel occupancy jumped to 71.1% in the latest week from 62.3% during the week of Labor Day. Among the strongest performers was Chicago, which just hosted International Manufacturing Technology Show. The massive six-day trade show attracted an estimated 90,000 attendees representing all 50 states and travelers from 113 countries. On slide 7 (available to clients in the full report) we showcase how trade shows are big business.
Our take
Energy has once again become the economy’s dominant storyline, reshaping inflation expectations, consumer sentiment, and monetary policy. The renewed surge in energy prices are most obvious at the pump, where diesel prices have reached record highs and gasoline prices continue to climb. Ironically, this comes as crude oil dropped more than 8% this week, slipping to roughly $92 per barrel. But there’s a lag between the underlying commodity and fuel prices.
Consumers are likely to remain frustrated as higher fuel costs erode purchasing power and filter through transportation, shipping, and production costs. In many ways, the energy market has become the key variable influencing the broader economic outlook, forcing households, businesses, and policymakers to reassess expectations for growth and inflation.
The severity of the latest energy shock is evident in the unprecedented spread between diesel and gasoline prices. Typically, such a widening gap signals disruptions somewhere within the energy supply chain, whether from constrained crude oil supplies, strong demand for refined products, or insufficient refining capacity. The current surge appears to reflect all three factors. U.S. refiners are operating near full capacity at roughly 98%, leaving little room for additional production, while global markets continue to grapple with the loss of approximately half of Russia’s refining capability, removing a significant source of refined fuel from the market. The combination of limited crude availability and tight refining capacity has created an imbalance that is pushing diesel prices markedly higher relative to gasoline. This is why there’s been an increase in the talk for a diesel export ban.
Despite the growing pressure from energy markets, several pockets of the economy continue to display resilience. New home sales rebounded in August following several softer months, suggesting that demand has not entirely succumbed to elevated borrowing costs. Home prices also edged higher during the month, while the South remained the largest contributor to overall sales activity. Although housing conditions remain challenging, the latest data indicate that buyers continue to emerge when inventory and affordability conditions improve, helping stabilize a sector that has spent much of the past few years in a bad neighborhood.
Business activity has also proven resilient. Durable goods orders were essentially unchanged in August, though the headline number was weighed down by a sharp decline in military aircraft bookings. Excluding those volatile categories, core capital goods orders maintained solid momentum, signaling that business investment remains intact. At the same time, S&P Global’s manufacturing and services gauges both advanced in September, pointing to continued expansion across key segments of the economy. Together, these indicators suggest that underlying economic activity remains healthier than many anticipated despite higher interest rates and persistent inflation pressures.
Yet the economy’s resilience presents a challenge of its own. Crude oil has forced a reset across the board, underscoring the critical role petroleum plays in the global economy, not only as a transportation fuel but also as a key input for plastics, fertilizers, clothing, medicines, and countless industrial processes. Unfortunately, the recent resurgence in energy prices has reversed much of the progress on inflation and complicated the Federal Reserve’s path forward. With economic activity still holding up and energy inflation reaccelerating, policymakers have little room to declare victory over inflation, leaving the Fed increasingly boxed in between maintaining restrictive policy and protecting the expansion.
Bottom line
Crude oil’s resurgence is rippling across the economy, driving record diesel prices, lifting gasoline costs, and reigniting inflation concerns. Despite higher energy costs, housing activity and business investment remain resilient. The combination of persistent economic strength and renewed inflation pressure leaves the Fed with limited flexibility on rates.
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