State-level fuel tax rollbacks helping a little bit 

Trend watch

Seemingly right on schedule, weekly air passenger counts surged 4.2% in the past seven days to 17.5 million. If the typical seasonal pattern holds, it should continue climbing for the couple of weeks before throttling down by month end, remaining on that plateau through mid-November. Traffic then spikes again around Thanksgiving. Unfortunately, the year-to-date is running -0.6% behind 2025’s record pace.

In addition to the 15 state-level fuel tax rollbacks, the federal government will now allow so-called off-road "dyed" diesel for highway use and suspended the 24.4-cent-per-gallon federal tax for the remainder of 2026. These moves are helping, slowly trickling down to the pump. Still, the national averages for gasoline and diesel remain elevated (slide 7, available to clients in the full report).

Our take

Elevated diesel and gasoline prices remain a significant headwind for households and businesses, even as recent state-level fuel tax relief has provided some modest relief at the pump. Fuel costs continue to weigh heavily on consumer budgets, contributing to persistent concerns about inflation and affordability. While lower taxes have helped ease some of the pressure, energy prices remain high enough to sustain consumer frustration and could continue influencing spending patterns in the months ahead.

Those concerns were reflected in the preliminary October reading of the University of Michigan Consumer Sentiment Survey, which declined for the third consecutive month. Survey respondents cited higher fuel prices and broader inflation pressures as key reasons for growing pessimism. Inflation expectations also moved higher, with one-year and long-term expectations reaching five-month highs. That suggests consumers are becoming less confident that price pressures will moderate in the near term.

Those inflation concerns were reinforced by the latest ISM Services report, which showed activity moderating in September, but persistent price pressures, climbing to its highest level in four years. Several service-sector subcomponents softened during the month, pointing to a slower pace of growth across portions of the economy. The combination of softer activity and rising costs highlights an economy that continues to expand but faces ongoing inflationary pressures beneath the surface.

Yet, despite the sour mood among consumers and signs of moderation in services activity, trade and logistics indicators remain remarkably resilient. The Port of Los Angeles, the largest U.S. container port, handled a record number of units in September. That’s on top of strong rail traffic figures for the past three months. Strong cargo volumes suggest that demand for imported goods remains healthy and that supply chains continue to handle elevated levels of activity despite numerous economic uncertainties and higher shipping costs due to global fuel prices.

Taken together, the latest data paints a picture of an economy that remains resilient but increasingly uneven. Consumer confidence continues to deteriorate under the weight of elevated fuel costs and rising inflation expectations, while businesses face renewed cost pressures that could complicate the Federal Reserve's inflation fight. At the same time, record-setting port activity signals that demand has not collapsed and that economic momentum persists in key sectors. This divergence between softening sentiment and solid underlying activity reinforces the view that the U.S. economy remains on stable footing, though inflation and energy costs continue to pose meaningful risks to the outlook.

Bottom line

Higher fuel prices continue to strain household budgets and fuel inflation concerns, contributing to a third straight decline in consumer sentiment. Yet, rising prices and record container traffic suggest demand remains firm and that the U.S. economy continues to plod through the headwinds.