Weekly Economic Report 8.7.26

After last week’s GDP data signaled booming profit margins, this week’s round of labor market data suggests that the profits picture will remain bright in the third quarter – but at the cost of increasing pressure on the consumer. There was no good news for employees’ incomes – as not only did the number of jobs decline, but wage growth was a meager 0.1%. We estimate that trend growth over the next two months would produce only a 2.4% annualized growth rate in nominal consumer spending power for the third quarter – below core inflation, and far below expected nominal GDP growth. While that suggests that profits growth will remain exemplary – it also means that everything in the US economy is being driven by the AI buildout. In mid-2026, we believe we are at peak optimism about AI, just as we were at peak optimism about the internet in late 1999 and the housing boom in 2005. Ultimately, both those cycles reached a peak, like all others through history, as competition raised costs and squeezed margins, while pricing resulted in disappointing demand from end users. We do not know how, or when, this cycle will unravel – but we expect that by mid-2027 the outlook will be seen through less rose-colored glasses, and that markets will be addressing the shift well before then.

EU08-07-2026.pdf

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