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, JDA’s current forecast for the economy in 2026 has been impacted by the war in the Middle East. As we suggested earlier in the year, black swans are flying all around, and one just landed in the Persian Gulf. This is not to say that it is likely that the country (or for that matter the world overall) will be greatly impacted by the current action; however, all wars are by their very nature unproductive, since blowing things up negates value to both sides in a conflict.
Most notably, the destruction of petroleum production and transportation facilities and equipment will be reflected in higher energy costs for an extended period, so even if a ceasefire were to hold, it will take some time for oil prices to fall.
Forecast:
Inflation: Forecast increased to 3.5 – 4.0 percent
Unemployment: Continue to forecast increasing along trend to about 5.0 percent.
Market Interest Rates (10-year Bond): Even though yields hardly budged after the beginning of the conflict with Iran, the forecast continues to suggest the yield rising to 4.5-5.0 percent.
Real GDP: Q1 will reflect higher government spending, however, this is non-productive. Expect a surprise in Q1 with GDP at 2.5 percent. Future growth will be muted with prints likely in the 1.5-2.25 percent range.
Risks:
Increased military activity and hostilities in Europe, the Mid-East and South America
Commercial real estate asset price collapse in CA, NY, IL
Severe 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.
The weak dollar was on display during my vacation to Paris at the end of March. It has strengthened somewhat since the beginning of the conflict in the Middle East but is still well below recent peaks. Interestingly, supplying goods used in a war is often recorded as an export, and the balance of trade should improve in the coming quarters. This will help strengthen the dollar. However, this trade is non-productive and will not have a positive impact on the structure of the US economy, or its productivity levels, so any strengthening of the dollar will likely be short lived.
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. March employment numbers spiked by about 178,000 jobs; however, the BLS statistics have been somewhat wonky for the last few years, and the BLS adjusted January and February jobs downward by 7,000 jobs. We don’t expect the large jump in March to be the start of a trend and still foresee a fairly stagnant employment market for 2026.
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. Starts spike during the winter months, as most new construction is occurring in the sunbelt. This year was no exception, as January starts jumped to levels from both 2004 and 2005 (up to an annualized 1.5 million). While this is well below historical levels, current family formation is much lower than during the 1970s and 1980s. Again, not too low to suggest a deep recession, but low enough to forecast stagnation.
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 surged during the COVID period, as production around the world was halted, and the ability to find supplies (and labor) was constrained. Since then, while the index has not gone down precipitously, it has remained quite stable. Numbers for the start of the year were up by about 3.25 percent on a year-over-year basis, which continues the increasing trend. Expect prices to jump considerably in the coming months, as prices for petroleum, fertilizer, and chemical products spike in response to the war in the Middle East.
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.
Currently, even though the Federal Reserve is pushing down short-term rates, the longer term 10-year rate has begun to increase, suggesting that markets are expecting inflation to be higher than the FFR and that demand for more debt will grow. Neither of these things are good for the economy over the longer term, so the US should likely expect to continue to underperform. Even so, rates are still well below historical norms, suggesting that monetary policy is too loose, and policy is in an inflationary mode. This is the monetary view of inflation (which differs from the supply side costs discussed before, but which also plays an important role).
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 have been falling since the end of the COVID period, first due to sizable releases from the US strategic petroleum reserves, then due to increased production. However, the conflict in the Persian Gulf sent prices soaring, with the spot price of WTI reaching above $90, and Brent up to nearly $130 per barrel. Prices should moderate once some sort of stability is established; however, production in the Middle East will be down since much of the infrastructure has been destroyed. Over time WTI should fall back into the $50-$60 per barrel range, though it will be more detached from Brent which will likely continue to have a $10-$15 per barrel premium. Over time, particularly if tensions in the Middle East wane, we can expect to see oil prices trend lower, stabilizing back to a band around $55 per barrel for WTI, a growth neutral level.
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.
