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Economic Commentary

Passing the Baton: What Powers the Economy Into 2026

January 5, 2026 by Jeanette Garretty, Chief Economist

Welcome to 2026. The traditional image of the baby who brings in the new year seems modestly inappropriate as the US economy enters what, by many measures, represents the 198th month of an economic expansion that started in the third quarter of 2009. There have indeed been quarters of negative growth during this time period, most notably during the spring of 2020 (the dramatic, two month long “recession" of March and April 2020) due to the pandemic shutdown. Yet annual economic growth has proceeded apace for more than 16 years, a truly remarkable statistic. The key to such longevity is not only the lack of economic policy mistakes and the resilience of consumer spending, but also the rolling exchange of economic leadership among sectors and industries: a surge in energy development, a boom in technology due to innovation, a pick-up in investment spending or trade, a rise in government infrastructure or defense spending. There is a great deal of focus at the moment on this economic leadership question, as well as the necessary ongoing strength of the consumer. Investments in artificial intelligence by many industries should continue to carry the baton in 2026, now likely to be joined by a long-awaited rebound in home sales — especially if the Federal Reserve continues to lower interest rates. Trade may also provide a timely boost to economic activity via an imminent Supreme Court ruling that potentially lowers tariffs. All would be quite exciting if the nagging worry over employment trends could be positively resolved. 

Data to Watch 

  1. Institute for Supply Management (ISM) Purchasing Managers Index (PMI) for December (with special focus on employment and new orders), released Monday, January 5 
  1. ADP Employment Change for December, released Wednesday, January 7 
  1. US JOLTS (job openings and labor force turnover) data for November, released Wednesday, January 7 
  1. US Nonfarm Employment and Unemployment Rate for December, released Friday, January 9 

Suggested Reading 

  1. Three Months, 19,687 Nautical Miles: This Lengthy Trade Route Is Peak Globalization 
  1. Caterpillar’s Surging Stock Is Fueled by AI, Not Yellow Excavators 
  1. Shoppers Spend Big This Holiday Season, Despite Economic Pressures 
Disclosures

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