The U.S. economy is beginning 2026 in better shape than many expected. After a choppy 2025 that included a government shutdown and uneven growth, recent data suggest activity has stabilized. Employers added 130,000 jobs in January, roughly double forecasts, with most gains coming from the private sector. The unemployment rate edged down to 4.3%, indicating the labor market remains healthy even as hiring has cooled from the rapid pace seen earlier in the recovery.
Inflation is also moving in the right direction, though progress has been gradual. The latest CPI report came in at 2.4% year over year, closer to the Federal Reserve’s long-term target. This environment’s steady employment and moderating inflation are generally supportive of both consumers and businesses.
Household spending, the backbone of the U.S. economy, remains resilient. Strong balance sheets and recent fiscal measures in the One Big Beautiful Bill have helped sustain demand, although the benefits have been uneven. Higher-income households continue to drive much of the spending growth, while others remain more sensitive to elevated prices.
Looking ahead, economic growth in 2026 is likely supported by continued corporate capital investments in onshoring and the buildout of artificial intelligence infrastructure. At the same time, risks have not disappeared. Trade tensions, tariff policies, and potential policy missteps could create volatility along the way.
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Technical Terms:
The term federal funds rate refers to the target interest rate set by the Federal Open Market Committee (FOMC). This target is the rate at which commercial banks borrow and lend their excess reserves to each other overnight.
The Consumer Price Index (CPI) is a measure of the monthly change in prices paid by consumers. The CPI consists of a bundle of commonly purchased goods and services. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending.
