Real GDP increased at an annualized rate of 2.2% (3rd estimate) in the second quarter of 2026, following revised growth of 2.5% in the first quarter. While economic activity has moderated slightly from the stronger pace experienced earlier in the year, underlying growth remains constructive. Recent readings from manufacturing and services surveys indicate continued expansion, and the Atlanta Federal Reserve’s GDPNow model currently estimates third-quarter real GDP growth at 3.7%, supported by resilient consumer spending and ongoing business investment. We continue to expect economic growth to remain positive and settle into a sustainable trend near its long-term potential over the coming quarters.
The labor market remains healthy, although hiring activity remains subdued. Employment growth has slowed from the pace observed during the post-pandemic recovery, yet unemployment at 4.2% remains low by historical standards, and labor market conditions have managed to support household spending. The environment remains characterized by what we have previously described as “low-hire, low-fire,” with employers generally maintaining existing workforces while exercising greater caution when adding new positions, as seen by payroll growth averaging 51,000 jobs over the past 3 months. While labor demand has cooled, there remains little evidence of the broad-based weakness typically associated with an approaching recession.
Inflation remains above the Federal Reserve’s long-term target of 2%. CPI and core CPI were 3.4% and 2.4%, respectively. Meanwhile, the Federal Reserve’s preferred inflation measures, PCE and Core PCE, were 3.4% and 3.0%, respectively. Elevated energy prices and trade-related cost pressures contributed to inflation volatility earlier in the year, and questions remain as to whether higher inflation expectations have become embedded in consumer and business purchasing decisions. Although the path back toward the Federal Reserve’s 2% target is likely to be uneven, inflation expectations appear well anchored for now, helping to support confidence that the recent period of elevated price increases will moderate over time.
Financial markets have shown resilience despite a backdrop of elevated inflation, geopolitical uncertainty, and mixed economic data. After the Federal Reserve reinitiated interest rate hikes in September, fixed income (bond) securities have seen downward pressure. Meanwhile, equity markets have continued to benefit from strong earnings growth in sectors linked to artificial intelligence, automation, and technology infrastructure. Throughout 2026, markets have had to adjust to changing expectations regarding economic growth, inflation, and monetary policy, but overall conditions continue to provide growth opportunities for diversified portfolios.
We expect a constructive backdrop characterized by trend-like economic growth, a gradually cooling labor market, and inflation that continues to normalize, albeit slowly. While policy uncertainty and geopolitical events may generate periodic volatility, recession risk appears low, and current economic conditions continue to support expansion. Against this backdrop, we have tactically adjusted portfolios to reduce short-term downside volatility risk from higher interest rates and yields. Overall, we are maintaining diversified portfolios focused on long-term objectives and risk tolerance.
This Commentary is provided by Spraker West Wealth Management, a registered investment advisor, and is for informational purposes only. It should not be construed as investment advice and is not intended as a solicitation of any specific product or service. Investments and/or investment strategies include risk including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives. Information provided is not intended as tax or legal advice and should not be relied upon as such. You are encouraged to seek tax or legal advice from a qualified professional.