The economy is in constant motion, and here at JDA, we’ve got our finger on the pulse. Our economists monitor the ebbs and flows of key indicators to provide critical analysis to our clients so they can make informed business decisions. Following are a series of six economic indicators that together paint the most current picture of US economic activity.
Communications
THE STATE OF THE ECONOMY
JDA’s Current Economic Forecast
Based on the indicators shown, the continued war in the Middle East is the major exogenous contributor to the state of the US economy. The war is resulting in both higher inflation due to disruptions in petroleum, fertilizer, aluminum and chemical supplies, and higher US federal deficits. In spite of certain wives’ tales about the Second World War, all wars are by their very nature unproductive, since blowing things up negates value to both sides in a conflict.
Forecast:
Inflation: Forecast increased to 4.0 – 4.5 percent
Unemployment: Reported unemployment has remained sticky in spite of the war, and higher inflation; however, this is likely due to a decline in the labor force. As this decline ends, we continue to forecast increasing along a trend to about 5.0 percent
Market Interest Rates (10-year Bond): New leadership at the Federal Reserve, along with higher deficit forecasts have pushed the 10-year bond yield to just under 5.0 percent. The forecast suggests that the yield will likely move toward a 5.25-5.50 percent rate by the end of the year, even with no intervention from the Federal Reserve.
Real GDP: Q1 will reflect higher government spending, however, this is non-productive. JDA was a bit above the curve in Q1 with the 3rd release showing a 2.1 percent increase, below our expectation of a 2.5 percent increase. The Atlanta Fed’s GDP Now suggests that Q2 will come in at 2.5 percent, which may be likely; however, future growth will be muted with prints likely in the 1.5-2.0 percent range.
Risks:
Increased military activity and hostilities in Europe, the Mid-East and South America
Commercial real estate asset price collapse in major US cities, leading to increased private equity retrenchment
European recession, as well as US Tariffs stifling trade
Nominal Broad U.S. Dollar Index (DTWEXBGS)
The Nominal Broad U.S. Dollar Index is a trade weighted index that reflects the value of the U.S. dollar relative to a broad set of currencies. It is calculated by the Federal Reserve and is set to a base value of 100 as of January 2006. Essentially, the index measures the demand for dollars relative to other international currencies. This allows JDA to track future inflation, as well as the relative level of debt capacity in the US.
In spite of being one of the better economies, in a world of shaky markets, the dollar continues to stay weak. As JDA forecast, after strengthening right after the Iran conflict started, the dollar has fallen to about at that rate. A big jump in import prices has led to larger balance of trade deficits which in turn push the price of the dollar down. The weak dollar, and higher inflation sparked by it, are a major factor in the Administration’s continued push to come up with some sort of understanding with Iran to open the Strait of Hormuz. Unfortunately, it may take a much more aggressive military response to make this happen, and the continuation of the war will continue to both push prices higher, and the dollar lower.
Source: Board of Governors of the Federal Reserve System (US), Nominal Broad U.S. Dollar Index [DTWEXBGS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTWEXBGS.
Employment Level (CE16OV)
The Bureau of Labor Statistics calculates the number of employed individuals using a survey of households. The measure does not include persons under 16 years of age, inmates of institutions (e.g., penal and mental facilities, homes for the aged), and those on active duty in the Armed Forces. While the BLS has come under a lot of criticism for its methods, this is still one of the most complete measures of the number of people working in the country.
The employment level is one of the best measures of the current health of the economy. Generally, when employment falls for 4 or 5 months straight, one can expect to see recessionary times and a loosening of monetary policy. Employment levels peaked in December 2025, and adjusted numbers have been falling since then. The most recent figures put May employment at 162,771,000, a figure which will likely be adjusted downward. Flat employment does not necessarily mean that the economy is in recession, and it is unlikely that the economy is currently technically in one, however, spending by retiring Baby Boomers is a key driver keeping the economy from declining, and this is not productive spending, but rather a reduction in savings. Lower savings rates reduce the availability of capital for future investments and can impact future productivity growth.
JDA expects employment levels to remain about flat during the remainder of the year, potentially declining slightly.
Source: U.S. Bureau of Labor Statistics, Employment Level [CE16OV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CE16OV.
New Privately-Owned Housing Units Started: Total Units (HOUST)
Housing Starts as measured by the Census Bureau represent excavation beginning for the footings or foundation of a building. All housing units in a multifamily building are defined as being started when this excavation begins. Beginning with data for September 1992, estimates of housing starts include units in structures being totally rebuilt on an existing foundation. Homes represent both the largest expense, and the largest asset for a large percentage of Americans, and increases in housing starts relative to population growth, are an indicator of future consumption and debt levels.
While they are volatile, housing starts have been in the 1.4 – 1.5 million range on an annual basis going back to the Eisenhower Administration. They did fall precipitously during the 2008 financial crisis and have never recovered to prior levels. This is due to a number of factors including lower levels of household formation, as well as asset price inflation due to negative interest rate policies, that have priced many younger people to forego home ownership. Post-COVID housing starts peaked in April 2022 and have seen monthly declines since then, coming in at just 1.18 million (annualized) in May. Slow household formation, affordability, higher interest rates, and consolidation by the retiring baby boom generation are all likely to keep housing starts well below historical levels for the foreseeable future. JDA believes that annualized housing starts may well have peaked for this cycle.
Source: U.S. Census Bureau, New Privately-Owned Housing Units Started: Total Units [HOUST], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HOUST.
Producer Price Index by Commodity: All Commodities (PPIACO)
The Producer Price Index (PPI) is produced by the Bureau of Labor Statistics (BLS) and measures the average change over time in prices received (price changes) by producers for domestically produced goods, services, and construction. PPIs measure price change from the perspective of the seller.
While there are many indicators for inflation, we (as microeconomists), look toward production rather than consumption as being a key source of inflation. If producers’ costs increase, so too must prices, otherwise, production stops and then shortages lead to higher prices from the demand side.
The PPI has been rising at an exponential rate since December 2025, surging by 3.5 percent in May. This was the largest monthly increase since 1974. While the increase was driven by a 10.7 percent monthly increase in energy prices, other products such as grains and pharmaceuticals also spiked. In addition, energy dependent services such as wholesaling and air transportation were up by large percentages. On an annual basis, the index is up by 6.5 percent in May (May 2026/May 2025), and even though oil prices are down, higher costs for natural gas derived products such as fertilizer, and higher electricity costs are likely to continue well past the end of the year.
JDA does not expect to see the PPI to flatten quickly, even if the war in the Middle East were to end. Damage to facilities in the Persian Gulf, as well as those caused by the earthquake in Venezuela will continue to put pressure on energy prices, which will continue to flow into the cost of other products.
Source: U.S. Bureau of Labor Statistics, Producer Price Index by Commodity: All Commodities [PPIACO], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/PPIACO.
10-Year Treasury Constant Maturity Minus Federal Funds Rate (T10YFF)
The 10-Year Treasury Constant Maturity Minus Federal Funds Rate (T10YFF) represents the difference between the yield on a 10-year Treasury bond and the Federal Funds Rate. It helps gauge the demand for US Treasuries and influences interest rates in the economy.
In an economy dependent on debt, interest rates matter. High inflation adjusted interest rates, along with constant borrowing across all sectors of the economy (including commercial debt, personal debt and government debt) can lead to higher consumption today, but lower production in the future. In effect, debt is equal to consumption pushed forward, while savings equals delayed consumption. High debt levels reduce the potential for more investment in the future. The Federal Reserve controls the Federal Funds Rate (FFR), which is equal to the rate banks pay and receive for overnight reserve deposits (something that today is barely used), while the 10-year treasury is considered to be the market rate for debt.
New leadership at the Federal Reserve, along with higher deficit forecasts, have pushed the 10-year bond yield to just under 5.0 percent. At the same time, the Fed has not changed its interest rate policy, with the target rate holding steady at 3.75 percent. This puts the margin at about 1.25 percent, which is still historically low. The difference in normal market times is about 200 basis points (2 percent), so we can expect this spread and the rate for 10-year Treasurys, to continue to increase some more. Monetary policy continues to be too loose, and inflationary, suggesting that the Federal Reserve’s next move will likely be a small increase in its target rate. This, however, is unlikely to occur until after the election. The Federal Reserve can tighten monetary policy by reducing its balance sheet, though this is unlikely to occur with the Federal government operating under a deficit spending regimen.
Source: Federal Reserve Bank of St. Louis, 10-Year Treasury Constant Maturity Minus Federal Funds Rate [T10YFF], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/T10YFF.
Crude Oil Prices: West Texas Intermediate (WTI) – Cushing, Oklahoma (DCOILWTICO)
The West Texas Intermediate (WTI) is one of the main global benchmarks of oil pricing. This measures the price of oil in Cushing, Oklahoma, one of the countries’ main pipeline terminals (and by the way the most inland port in the country).
Energy is the key resource for economic growth and prosperity. Every time a new, more productive form of energy has been discovered, technology, population and the economy has boomed. WTI is the most applicable indicator of oil prices in the United States.
Crude oil prices increased sharply after the start of the war with Iran; however, following the start of discussions between the US and the Iranian regime, they have fallen back, not to pre-conflict levels, but back to the level they were when President Trump took office. As of this writing, the price of WTI stood at $78.94 per barrel, and Brent was at just $76.49. Over time WTI should fall back into the $50-$60 per barrel range, though it will be more detached from Brent which will likely have a premium of about $10 per barrel. Once tensions in the Middle East wane, we can expect to see oil prices trend lower, stabilizing back to a growth neutral band around $55 per barrel for WTI.
Source: U.S. Energy Information Administration, Crude Oil Prices: West Texas Intermediate (WTI) – Cushing, Oklahoma [DCOILWTICO], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DCOILWTICO.
Disclaimer: The State of the Economy is provided as a service to our clients and policy friends by John Dunham & Associates. It is not intended as investment advice. If you would like more information, or if you would like us to track additional indicators, please feel free to contact us at JRD@GuerrillaEconomics.com, or by phone at 212-239-2105.
