Weekly Economic Report 1.16.26

The economy continued to expand in the fourth quarter at a solid pace, well above our estimate of potential – but nowhere near the 5% touted by the President, which was likely based on the GDP Now estimate. GDPNow was at 5.1% after the retail sales and CPI reports, with a 3.1% estimate for consumption – up from 3.0% previously. We estimate consumption is growing at closer to 2%, and with the trade and inventory data still suspect, we are more comfortable with a fourth quarter estimate at 2.5%, down from 3.0% a week ago – but still well ahead of our view on potential, which has risen to 1.5% due to stronger labor force growth in the catch-up household employment reports. Everything about the recent economic data is in flux, but 2.5% would match the average of the past three quarters and is just a bit behind the 2.8% of 2024. We still see most of that deviation as due to immigration restrictions limiting the growth in bodies – but not per capita growth. Thus, our major takeaway is that the US is still growing well above potential for a fourth straight year, and that the productivity (and profits) boom that everyone expects from AI has already been underway for quite a while due to much more mundane improvements in efficiency generated by firms taking a closer look at how they do business after COVID, Biden era regulation, and now tariffs and immigration reform. The success of firms in managing the volatile policy world tells us policy matter less than adaptability in the suburbs of the global economy.

EU01-16-2026.pdf

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