PUBLISHED June 28, 2026
Resilience Tested: A Narrower Foundation for Growth
According to EY-Parthenon’s June 2026 US Economic Outlook, the economy remains resilient, but the foundation of growth has become narrower. Interest-rate-sensitive sectors continue to struggle under elevated financing costs, while an income squeeze driven by slower wage growth and higher inflation is constraining consumer spending. Business investment has strengthened, supported by AI-related capital spending, but housing activity remains in the doldrums — a pattern consistent with the broader K-shaped dynamic that has characterized the US economy for much of the past year.
The Middle East Wildcard: Upside for Growth, Downside for Inflation
Easing Middle East tensions and lower oil prices represent an upside risk to growth and a downside risk to inflation, but the drag from higher input and energy costs and elevated interest rates will likely continue to cap consumer and business spending. EY-Parthenon expects only a gradual normalization in energy supply conditions, with oil prices likely to remain above pre-conflict levels through year-end — meaning that even in a relatively optimistic scenario where the conflict de-escalates further, the US economy will be living with the inflationary residue of the shock for some time to come.
Hiring Stays Selective as Labour Supply Tightens
Hiring remains highly selective, but the steady unemployment rate reflects labor demand keeping pace with constrained labor supply amid aging demographics and lower net migration. EY-Parthenon expects payroll growth to average around 70,000 per month in 2026, with the unemployment rate drifting modestly higher. This is a notably different labour market dynamic than a simple slowdown: demand for workers is genuinely soft, but the available pool of workers is shrinking just as fast, keeping unemployment from rising as sharply as job growth figures alone might suggest.
Household purchasing power remains under pressure: inflation continues to outpace nominal wage growth, resulting in a real income squeeze. A positive wealth effect from rising equity markets continues to support spending among affluent households, but as budgets tighten, a growing number of consumers are relying on savings and credit to sustain spending — a dynamic that may become increasingly difficult to maintain. Separate analysis from the Mercatus Center reinforces this divide: the top 10 percent of US earners now account for a record 49 percent of all consumer spending, while consumer confidence among people without a college degree fell to an all-time low in January 2026.
Household purchasing power remains under pressure: inflation continues to outpace nominal wage growth, resulting in a real income squeeze. A positive wealth effect from rising equity markets continues to support spending among affluent households, but as budgets tighten, a growing number of consumers are relying on savings and credit to sustain spending — a dynamic that may become increasingly difficult to maintain. Separate analysis from the Mercatus Center reinforces this divide: the top 10 percent of US earners now account for a record 49 percent of all consumer spending, while consumer confidence among people without a college degree fell to an all-time low in January 2026.
Consumer spending has remained resilient, but momentum is likely to soften in the second half of the year. This anticipated slowdown reflects the cumulative weight of several pressures arriving at once: a labour market that is generating fewer new jobs, inflation that continues to erode real incomes, and a growing reliance on credit among households whose savings buffers are thinning — a combination EY-Parthenon flags as increasingly difficult to sustain without either a meaningful easing in prices or a reacceleration in wage growth.
The June Federal Open Market Committee meeting marked Kevin Warsh’s debut as Fed Chair, and the tone that emerged was notably more hawkish than markets had anticipated. This leadership transition arrives at a delicate moment: the Fed must balance the inflationary pressure stemming from the Middle East-driven energy shock against signs of a softening labour market and slowing consumer spending — a balancing act made more complicated by uncertainty over how a new Chair will weigh those competing risks relative to his predecessor.
Separate data from the Mercatus Center’s June 2026 analysis adds useful texture to the picture: total manufacturing employment in January 2026 stood at 12.59 million workers, slightly below where it had been a year earlier, despite the protective tariff regime in place. Only three states saw manufacturing employment growth in the first nine months of 2026, while the rest lost factory jobs — a sobering data point for an industrial policy explicitly designed to bring manufacturing jobs back to the United States, and one that illustrates the gap between tariff policy intentions and the on-the-ground employment reality.
Consumer spending has remained resilient, but momentum is likely to soften in the second half of the year. This anticipated slowdown reflects the cumulative weight of several pressures arriving at once: a labour market that is generating fewer new jobs, inflation that continues to erode real incomes, and a growing reliance on credit among households whose savings buffers are thinning — a combination EY-Parthenon flags as increasingly difficult to sustain without either a meaningful easing in prices or a reacceleration in wage growth.
The June Federal Open Market Committee meeting marked Kevin Warsh’s debut as Fed Chair, and the tone that emerged was notably more hawkish than markets had anticipated. This leadership transition arrives at a delicate moment: the Fed must balance the inflationary pressure stemming from the Middle East-driven energy shock against signs of a softening labour market and slowing consumer spending — a balancing act made more complicated by uncertainty over how a new Chair will weigh those competing risks relative to his predecessor.
Separate data from the Mercatus Center’s June 2026 analysis adds useful texture to the picture: total manufacturing employment in January 2026 stood at 12.59 million workers, slightly below where it had been a year earlier, despite the protective tariff regime in place. Only three states saw manufacturing employment growth in the first nine months of 2026, while the rest lost factory jobs — a sobering data point for an industrial policy explicitly designed to bring manufacturing jobs back to the United States, and one that illustrates the gap between tariff policy intentions and the on-the-ground employment reality.
