State-level fuel tax rollbacks helping a little bit

Note: As always, there was a separate Economic Commentary discussing the monthly jobs report published on October 2nd.

Trend watch

Roughly one-third of states (15) delivered some form of fuel tax relief recently. Only a handful (6) are broad suspensions, such as Georgia, Ohio, and Indiana, while nine others target so-called dyed diesel, which is intended for off-road use such as farm equipment and machinery like bulldozers and cranes.

California ended its summer-blend requirement early, which should save 15 cents a gallon for the winter blend. Similarly, U.S. Environmental Protection Agency suspended its summer blend requirement on September 1st, two weeks ahead of schedule.

Some of these moves are slowly trickling down to the pump, but the national averages for gasoline and diesel remain elevated (slide 8, available to clients in the full report).

Weekly air passenger counts continue to closely follow the typical seasonal pattern, falling 0.9% in the last week. They should pick up for the next two weeks before throttling down later this month through mid-November. Then traffic spikes again around Thanksgiving. Unfortunately, the year-to-date is running -0.6% behind 2025’s record pace.

Our take

Consumers received some welcome relief as diesel and gasoline prices eased modestly following several state-level fuel tax rollbacks, but fuel costs remain elevated compared to historical norms. And those rollbacks don’t help roughly two-thirds of the states.

As a result, energy prices are likely to remain a source of frustration for households, particularly as consumers continue to grapple with higher borrowing costs and lingering inflation pressures. While lower fuel prices may provide some near-term breathing room, they are unlikely to fully alleviate concerns about affordability.

Despite these headwinds, the broader economy continues to display surprising resilience. Second-quarter economic growth was revised higher to 2.2%, reinforcing the view that economic activity remains on solid footing. The upward revision was driven largely by stronger consumer spending and robust investment in technology. That strength, however, was partially offset by weaker net exports and a drawdown in business inventories, underscoring that not all corners of the economy are moving in the same direction.

The consumer remains the key pillar supporting growth. Accounting for more than two-thirds of economic activity, household spending continues to hold up remarkably well despite elevated interest rates and ongoing economic uncertainty. Recent personal income and spending data suggest consumers remain willing and able to spend, helping to sustain the expansion.

Meanwhile, the manufacturing sector cooled as the ISM Manufacturing Index slipped in September. The broader manufacturing dashboard suggests progress has stalled following earlier improvements. More concerning, price pressures showed signs of reemerging, highlighting the risk that inflation may prove more persistent than hoped. Manufacturing activity remains soft by historical standards, but the renewed pickup in input costs serves as a reminder that the path back to the Federal Reserve’s inflation target is unlikely to be smooth.

The labor market tells a similar story of moderation rather than deterioration. Job openings and the quits rate declined in August, reflecting a continued normalization in labor demand, while hiring surprisingly increased. The result is a labor market characterized by a “low hire, low fire” environment, where employers remain cautious but are not engaging in widespread layoffs.

Uneven month-to-month job growth will likely continue to frustrate markets, much as it has over the past three years, reinforcing the “one foot on the gas, one foot on the brake” dynamic that has defined the economy throughout 2026. Taken together, the latest data should reduce the urgency for the Federal Reserve to raise rates at its October 28^th meeting, though another round of critical inflation data remains to be seen before policymakers make their final decision.

Bottom line

The U.S. economy remains resilient as stronger consumer spending, robust technology investment, and a healthy labor market support growth and keep recession fears at bay. However, elevated fuel costs, renewed manufacturing price pressures, and continued labor market normalization reinforce an uneven economic backdrop that may allow the Federal Reserve to remain patient ahead of its October policy meeting.