Economic Outlook
By: Russ Colbert
Summer 2026 (Vol. 44, No. 2)
You don't have to look very far to find negative press or commentary about the U.S. economy. We have high gas prices due to the Iranian war that are squeezing consumer budgets, and some believe the economy is headed down for a while. Many economists, looking back at history, have been blaming oil prices for causing recessions.
Looking at inflation reports over time, it seems to be a continuous monetary event. For example, in the very short term a spike in oil prices can change inflation reports because businesses and consumers dip into savings temporarily to spend more and the basket of goods and services used to measure inflation does not immediately change.
As a result, the CPI (Consumer Price Index) is up 3.8% from a year ago, which is above the Federal Reserve's target. This will most likely keep the Federal Reserve Bank from lowering interest rates, especially short-term interest rates, over the next several months. However, oil price shock is typically viewed as a temporary issue. And the impact on the economy has been muted or minimized. After adjusting for inflation, things appear not much different than before the war with Iran started.
While the Middle East events are dramatic it is a little bit more surprising that we have not paid more of a price. Deficits have been relatively stable and money supply has slowed considerably. If the economy continues to slow dramatically more, it would probably be due to the war and not an oil price supply shock.
We also think some of the U.S. stocks may be overvalued, but that does not mean they will drop, no matter what our forecast is.
The size of our government is larger than it has been anytime during the Internet age. For the past 20 years the average real growth in the U.S. has been around 2% per year. This is less than half the growth the U.S. experienced in the 20 years after World War II. The U.S. economy continues to grow as we develop incredible new technologies that raise our productivity. Unfortunately, more resources being allocated by politicians rather than market forces always slows growth.
So, we may see what some might call malaise because government is such a drain on the economy, the evidence of the economy being on the verge of a recession simply is not there, at least not yet.
Real GDP grew at a 2% annual rate in the first quarter, and we think is on track to beat 3% GDP so far in the 2nd quarter. The Alanta Federal Reserve Bank is even more optimistic for the 2nd quarter, projecting a growth rate of 4.3% GDP currently.
The initial claims for jobless benefits have been averaging around 203,000 over the last four weeks, lower than they were a year ago due to what we believe is causing this is a shift to net zero immigration over the past year.
Manufacturing production is up 1.2% from a year ago, it's not great, but no sign of a recession. Compare that to the previous ten-year average that was down at a 0.4% annual rate over the previous ten years ending April 2025.
The recent economic growth is led by Artificial Intelligence and Data Centers. In our opinion as soon as we can get past the war with Iran, oil prices should stabilize and the economy should show improvement as we move forward. Things are not as bad as some media outlets lead us to believe with the U.S. economy, and the gloom and doom is being oversold. So, stay buckled up, this war will pass and the economy will continue to improve.
If you have any questions or need a free portfolio review to keep you on track with your investments or retirement plan, please call me.
Russ Colbert
Senior Portfolio Manager
1-888-878-0001
Advisory services offered through Royal Palm Investment Advisors, Inc., a Registered Investment Advisor.