Stronger Demand, Higher Rates: What the Latest Economic Data Means for PHCP-PVF

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Why this matters: U.S. business activity is accelerating, manufacturing remains in expansion territory and some construction indicators are improving. But that momentum is unfolding alongside persistent inflation and higher borrowing costs, creating a mixed outlook for PHCP-PVF distributors heading into the final quarter of 2026.

The U.S. economy is showing fresh signs of strength, but the latest data suggests PHCP-PVF distributors could be heading into a period of better demand without much relief from the financial pressures that continue to shape construction, inventory and capital spending.

The S&P Global U.S. Composite PMI Output Index rose from 56.0 in August to 58.4 in September, its highest level since July 2021. Readings above 50 indicate expansion. S&P Global said the September data pointed to the fastest overall growth in more than five years, supported by stronger new business and rising employment.

Manufacturing data points in a similar direction.

The Institute for Supply Management reported an August Manufacturing PMI of 54.6, marking the eighth consecutive month of expansion. Production registered 58.3, while the New Orders Index came in at 53.7, signaling continued growth in both factory activity and incoming demand.

PHCP-PVF distributors, though, understand that stronger national growth does not necessarily mean every PHCP-PVF end market is moving in the same direction.

Total U.S. construction spending was running at a seasonally adjusted annual rate of approximately $2.16 trillion in July, down 3.8% from a year earlier, according to the U.S. Census Bureau. The Bureau also reported that private residential construction declined 1.3% from June, while private nonresidential construction increased 0.4% month over month to an annual rate of $755.2 billion.

Housing data also remains mixed.

Overall housing starts fell 2.6% in August to an annualized rate of 1.275 million units. Within that total, single-family starts increased 7.6% from July to 918,000 and building permits totaled 1.394 million, down from July but still 3.5% above August 2025, according to the U.S. Census Bureau.

Those figures suggest broader economic momentum may currently be outpacing improvement in construction overall.

At the same time, borrowing costs remain another important piece of the outlook.

The Federal Reserve raised its target range for the federal funds rate by 25 basis points on Sept. 16 to 3.75% to 4.00%. In its statement, the Fed described economic activity as expanding at a “solid pace,” while noting resilient domestic spending, robust capital investment and inflation that remained elevated.

Interest rates usually matter beyond the broader economic headlines. Higher rates can increase the cost of carrying inventory and financing working capital while also affecting customers’ construction financing, housing affordability and decisions around capital projects. They can also influence acquisitions, facility expansions and other investments distributors and manufacturers may be considering.

That creates an unusual combination heading into the final quarter of the year. Manufacturing is expanding, new orders are growing, and portions of the construction market are showing improvement. But at the same time, inflation remains persistent enough to keep borrowing costs elevated, while overall construction activity remains below levels seen one year ago.

“This is the conundrum” commented Dr. Chris Kuehl, ASA’s economist. “Inflation is the big concern as it has been sparked by factors that could be temporary. A resolution of the oil crisis or a slowdown in tariff and trade wars would allow a retreat as far as inflation goes. The ASA member currently faces a lot of caution and uncertainty but the potential exists for a boom in activity”.