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
Even though the economic data have been steady, there are three horsemen that are cresting the economic hill this Halloween month. The obvious economic concerns are the hounds of war, which are not only destroying lives and property on the active battlefronts, but are creating shortages, inflation and inefficiencies throughout the world economy. Add to this the specter of debt, not only at the federal level, but in private credit markets, and in households across the country. Finally, we see the potential goblins of both populism and socialism raising their ugly heads not only the United States but across most of the major economies. In a world with seemingly unsolvable problems, having decision makers that are entirely unable to work together can only make problems worse. It is in this environment that the current forecast must arise.
Forecast:
Inflation: Forecast to 4.0 percent, as weak demand helps hold down prices in spite of energy costs.
Unemployment: Reported unemployment has remained sticky in spite of negative pressures, due mainly to a reduction of about 1 million workers in the labor force. We continue to forecast unemployment increasing along trend to about 4.5 percent by year end, continuing to grow over time.
Market Interest Rates (10-year Bond): The Federal Reserve is reducing the IV painkillers it has been pumping into the bond market and even raised overnight rates by 25 bps. We expect to see the Fed keep in line with market rates and increase its benchmark Federal Funds rate by another 25 bps by year end, with the 10-year treasury to potentially breach 6.0 percent by year end.
Real GDP: Combined Q1-Q2 GDP growth of 2.5 percent annualized may have been surpassed in Q3. While the preliminary release will be out at the end of October, the Atlanta Fed’s GDPNow suggests that Q3 will come in at 3.7 percent, which seems somewhat aggressive. Without an end to Middle East and European conflicts future growth will be muted with prints likely in the 1.5-2.0 percent range.
Risks:
Overinvestment (or malinvestment) in AI products and infrastructure.
Continued military activity and hostilities in Europe, the Mid-East and South America
Higher interest rates leading to commercial real estate, zombie company and other asset price collapse. This will increase inability to access private equity and credit positions.
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. In fact, the dollar has barely budged against the Euro for over a year and a half – though it strengthened slightly after the beginning of the Iran conflict. It has also been falling against the Yen. Investors have turned away from dollar-based investments and have moved toward energy, metals, crypto and other commodities to take advantage of shortages. Import prices are up by 5.6 percent so far this year and the negative trade balance has been getting worse, reflecting these higher commodity prices. The weak dollar and higher inflation sparked by it, are a major factor in the current “affordability” debate, the largest issue in the current election cycle and with the “inflation witch” flying her broomstick at will, it will likely continue to be an issue well into the future.
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 September employment at 163,152,000, 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 continues to expect employment levels to remain about flat during the remainder of the year, potentially declining slightly from the September levels.
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 former negative interest rate policies, which have priced many younger people out of home ownership. Post-COVID housing starts peaked in April 2022 and have seen monthly declines since then, coming in at just 1.28 million (annualized) in August. Slow household formation, affordability, higher interest rates, and consolidation by the retiring baby boom generation are all likely to keep starts well below historical levels for the foreseeable future. JDA continues to believe that annualized housing starts may well have peaked for this cycle and will come in below 1.2 million for year end.
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 must prices; otherwise, production stops and then shortages lead to higher prices from the demand side.
The PPI has been rising quickly since December 2025. On an annual basis, the index was up by 5.4 percent in August (August 2026/August 2025), with energy dependent products leading the charge. The importance of energy in both the chain of supply and production is seen in much higher prices for grains, oilseeds, gasoline and diesel, industrial chemicals, synthetic fibers, and metals.
JDA does not expect to see the PPI flatten quickly, even if the wars in the Middle East and Ukraine 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.
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 is barely used today), while the 10-year Treasury is considered to be the market rate for debt.
A 25-bps increase in the Federal Funds Rate suggests that the Federal Reserve will finally let the market take the lead in monetary policy. This, along with higher Federal deficits, will keep the 10-year bond above 5.0, and potentially 6.0 percent for some time to come. In spite of the increase in the Federal Funds Rate, monetary policy continues to be too loose, and inflationary, suggesting that the Federal Reserve’s next move will likely be another small increase in its target rate, likely after the election. (Note we did not see the last increase coming pre-election, so the current Fed may not be respecting this tradition.) The Federal Reserve can also tighten monetary policy by reducing its balance sheet, though the opposite has been happening with the Fed continuing to monetize increased deficit spending. It is unlikely that any change in policy will result from the election, no matter which party wins.
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.
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.
As of this writing, crude oil prices (as measured by West Texas Intermediate delivered in Cushing, Oklahoma) were at just over $91 per barrel, with Brent sitting at $104. Brent prices are usually higher than prices in the United States, so this is likely a reflection of pre-winter purchase activity. High oil prices worldwide are directly related to the conflict with Iran and the destruction of much of the delivery and refining infrastructure in the region. Over time WTI should fall back toward the $60 per barrel range, with Brent priced at a premium of about $5-10 per barrel. When this will happen is really anybody’s guess, since the Iran conflict seems to go back and forth on a daily basis, but US crude production is at over 400 million barrels a month, a record level that is only increasing.
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.
