US Economic Outlook: Slow Growth and Stubborn Inflation Through 2026

Economic Data and Consumer Spending

• 📊 The latest economic report largely confirmed existing expectations, showing consumers are still holding up and spending on goods.
• 💡 Goods spending increased by 0.9% in July, while spending on services decreased, suggesting consumers are becoming more selective and stocking up on goods.
• 📈 An increase in imports, as seen in the advance trade report, indicates consumers are stocking up, potentially ahead of further tariff impacts.

Tariffs and Inflationary Pressures

• ⚠️ Economists estimate that tariffs have passed on to consumers at about 20-30% of their potential effect.
• 📌 The expiration of the de minimis tax tariff exemption is expected to add a few tenths of a percent to PCE inflation later in the year.
• ⏳ Inflationary pressures are expected to build through the end of the year and into the next, driven by tariffs filtering through to shoppers.

Global Economic Trends

• 🌎 Surprising downside GDP prints in countries like Canada, and rate cuts by central banks globally (Mexico, UK, Philippines), suggest growth may be slowing more quickly elsewhere.
• ⚡ Disruptions from new policies and actions can cause parts of the system to break, requiring central bank reactions.

US Economic Resilience and Fed Decisions

• 🇺🇸 Despite global trends, the US economy is seen as still solid with growth not heading into a downturn.
• 🏦 The Federal Reserve faces a tough choice regarding its next meeting and future policy decisions.
• 📉 Consumer confidence data shows concerns about inflation's future impact, with services spending weakening while goods spending rebounded.
• 💰 Consumers are facing tough choices, prioritizing necessities like food over discretionary spending, indicating a potential slowdown in consumer discretionary spend.