Economic Update Summer 2026

At 250 years the USA is an economic powerhouse. Our economic system has developed the greatest economy known to mankind…there is no other economic system that comes even close.

The first half of 2026 showed a U.S. economy that is stable, resilient, and still expanding, powered by stable labor markets, robust AI driven investment, and steady consumer spending. Inflation and geopolitical risks remain meaningful challenges, but midyear data suggests the economy is on track for moderate full year growth with improving global conditions. Bureau of Economic Analysis reported real GDP growth in the second quarter of 2026 was 1.5%. While the GDP number was lower due to a decline in federal government spending and inventories. Other parts of the economy appeared strong. Atlanta Fed GDP now model forecast third quarter real GDP of 5.9%! The US economy remains in a healthy expansion.

John Williams, New York Fed President, says economic growth is “solid and on trend, and the labor market is likewise solid and stable”. The U.S. economy remained resilient in the first half of 2026, expanding at a slight to moderate pace across most regions, supported by strong capital investment, steady consumer spending, and robust labor markets — even as inflation pressures and geopolitical shocks created headwinds. Economic activity increased in 11 of 12 Federal Reserve districts through late May and June, indicating broad but moderate expansion. Manufacturing, construction, transportation, and professional services all posted gains, with data center related investment a standout driver.

Global growth is forecast to slow to 2.5% in 2026, down from 2.9% in 2025. Forecasts for two-thirds of economies have been downgraded relative to beginning of this year.

Consumer Spending

Consumption which is accountable almost 70% of US economic growth is healthy as unemployment remains low and wages are rising. Personal spending rose 2.1% in the second quarter, while a key indicator of underlying demand called final sales to private domestic purchasers rose by whopping 3.9%. The Atlanta Fed’s Wage Growth Tracker trending at 3.6% in June. Household Debt Service Payments as a Percent of Disposable Personal Income are trending at historical levels that show consumers are not overly leveraged. Consumers have disposable income and are choosing to spend. Fiscal policy is also supportive. The One Big Beautiful Bill introduced additional tax reductions for households and businesses, encouraging spending and investment. Depreciation write-offs should continue to aid corporate capital spending. Capital investment — especially in AI infrastructure, semiconductors, data centers, and automation — remained strong. This was a major contributor to economic momentum and a key reason equity market rallied despite geopolitical uncertainty.

Labor Markets

The Atlanta Fed's Unemployment Claims Monitor reports that in the first week of July, initial unemployment claims remained near historic lows and so does continuing claims. The unemployment rate edged down to 4.2% (Labor Department) in June. Weekly unemployment claims recently reached levels not seen in roughly six decades - since 1969. And continuing claims remain below two million—consistent with an economy still in expansion.

Fidelity reported that ISM employment measures are in expansionary territory, increasing the odds of stronger job growth over the next year. Furthermore, there is a high correlation between high profit margins and future hiring. Today’s record profit margins support employment conditions.

Inflation & Interest Rates

The Bureau of Labor Statistics reported a decline in CPI Index (headline inflation) in June. Core CPI, ex energy, was unchanged. The year-to-year CPI reading came in at 3.5% versus forecasts for 3.8%. Core PCE inflation expectations rose to 3.4% year-over-year. Also the PPI Index, wholesale prices, declined in June aided by lower energy prices. The Atlanta Fed's sticky-price consumer price index (CPI)—a weighted basket of items that change price relatively slowly— rose 2.8% year-over-year. However, oil prices are creating inflation pressure in July.

The average price of WTI in July was $78.37, which is down from the average price of $81.79 in June. The current price is $84.50. The CME Group Oil Futures contract for this December is $76.92, and for March 2027 $73.58. Markets are saying the oil is headed lower in the future. Why isn’t the price higher given the Strait is effectively closed. CNBC reported that 13 billion barrels transited through the Strait. Moreover, Russia is exporting its oil since key refineries have been damaged by Ukraine drone attacks. Saudis pipeline to the Red sea is at capacity flowing with oil. US liquid natural gas exports are booming, supplying most energy dependent countries. China’s demand for oil has dropped given slowing economy and it stopped replenishing its strategic oil reserves. Markets say oil prices are headed lower in the next six months, however an escalation in conflict in the Middle East could change that.

The Federal Reserve held the Fed funds rate at 3.50–3.75% at July’s meeting. The CME Fed Funds Futures is pricing in a 67% chance of a one quarter point hike this September. Fed Chairman Warsh says the bond market is tightening conditions for the Fed. The average rate for a 30 Year-Fixed Rate Mortgage was 6.50% on May 30th, it is now 6.83% as of July 29th according to Mortgage Daily. It’s more expensive to borrow money now. If the Fed does not pursue further hikes, beyond one to two hikes this year, then the Fed’s actions would be more in line with a “non-tightening cycle”. Non-tightening cycle is the most bullish type of tightening cycle according to Ned Davis study. It’s the least damaging to the economy and would preserve the Bull market. Elevated oil prices for longer could be the inflation impulse that forces the Fed to hike more than once this year.

My view is a tightening cycle would stall the US economy’s growth and kill this Bull market. Long term, Fed Chairman Warsh says AI likely to be disinflationary force. CME Oil Future contract market is forecasting lower oil price by year-end and 1-Year Treasury Inflation Protected Bonds pricing in lower inflation one year from now. Moreover, the end to excess “free money” monetary policy, is extremely anti-inflation. Lower inflation and not sticky inflation maybe in the future - look through it.