Daily Spotlight

GDP Growing with $4.50 Gas

We are keeping our 2026 gross domestic product (GDP) growth forecast at 2.1%, even with gasoline at $4.50 a gallon and uncertainty around every corner. Much of the credit goes to the low unemployment rate, which we think provides the simplest and strongest explanation of the resilience of U.S. consumers. Only 4.3% of the labor force is unemployed, leaving 95.7% employed. And it is easier to fill a gas tank and pay bills when you have a paycheck. That does not mean things are easy. Many families have been coping with high prices for food, housing, transportation, healthcare, childcare, and insurance for about five years. In the April Beige Book formally known as the "Summary of Commentary on Current Economic Conditions," the Federal Reserve Bank of Kansas City reported that low- and moderate-income households (LMI) are increasing credit card utilization and other borrowing. With prolonged price pressures, they already have made significant spending reductions. LMI households "can't out-budget low wages, tariffs, and inflation," a bank contact reported. Bigger tax returns, record stock prices, a pick-up in spring hiring, and strong investment in artificial intelligence may not be helping every family, but are supporting the overall economy and our outlook. We expect 2.2% GDP growth in 2Q26, down from our previous estimate of 2.3%. We are forecasting 1.9% growth in 3Q, down from 2.1% as gas prices consume the short-term buffer from extra tax returns. Our 4Q estimate is 2.2%, up from 2.1%. We are maintaining our 2027 estimate at 2.0%. The two components of the Misery Index capture the tension in the economy and the challenge the Fed faces in meeting its dual mandate. Unemployment is low at 4.3%, but the CPI rose to 3.8% in April from 2.4% in January. Added together, they form the Misery Index, which is still below the average of 9.2% since 1949, but has risen uncomfortably to 8.1% from 6.9% in January. We would become increasingly concerned about consumer spending if gas prices are above $4.00 when the back-to-school shopping season starts in July....  been coping with high prices for food, housing, transportation, healthcare, childcare, and insurance for about five years. In the April Beige Book formally known as the "Summary of Commentary on Current Economic Conditions," the Federal Reserve Bank of Kansas City reported that low- and moderate-income households (LMI) are increasing credit card utilization and other borrowing. With prolonged price pressures, they already have made significant spending reductions. LMI households "can't out-budget low wages, tariffs, and inflation," a bank contact reported. Bigger tax returns, record stock prices, a pick-up in spring hiring, and strong investment in artificial intelligence may not be helping every family, but are supporting the overall economy and our outlook. We expect 2.2% GDP growth in 2Q26, down from our previous estimate of 2.3%. We are forecasting 1.9% growth in 3Q, down from 2.1% as gas prices consume the short-term buffer from extra tax returns. Our 4Q estimate is 2.2%, up from 2.1%. We are maintaining our 2027 estimate at 2.0%. The two components of the Misery Index capture the tension in the economy and the challenge the Fed faces in meeting its dual mandate. Unemployment is low at 4.3%, but the CPI rose to 3.8% in April from 2.4% in January. Added together, they form the Misery Index, which is still below the average of 9.2% since 1949, but has risen uncomfortably to 8.1% from 6.9% in January. We would become increasingly concerned about consumer spending if gas prices are above $4.00 when the back-to-school shopping season starts in July.  more

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