From the labor market to consumer spending, here’s what could make 2026 a pivotal year for Americans.
00:00:00 — Introduction
00:00:16 — Why 2026 Looks Strong
00:01:53 — What Jobs & CPI Will Show
00:03:02 — Inflation Outlook
00:04:21 — Will the Fed Cut Rates?
00:05:52 — K-Shaped Economy Risks
00:07:26 — Consumer Health Check
00:08:29 — Consumer Outlook for 2026
00:09:33 — Pick for Fed Chair
Transcript:
Caroline Woods:
Joining me now, Brian Jacobsen, Chief economist, Annex Wealth Management. Brian, great to have you back. Thanks for joining us.
Brian Jacobsen
Yeah, thank you for having me.
Caroline Woods
Brian, you say there’s quite a bit to like about the outlook for 2026. Kick things off and tell us what you like.
Brian Jacobsen
Sure. Well, I think maybe part of it is that it’s not 20, 25, that where it was a little bit of a low bar there in terms of the policy uncertainty that we knew that we were going to be facing in terms of, you know, tariffs, taxes, all sorts of other issues. But going into 2026, I think we’re seeing some early signs that the labor market might be getting a little bit more traction. So we are going through a period of time, a transition phase, negative payroll prints. But I think that we’re actually beginning to turn the corner there because of the one big beautiful Bill act that was signed into law. We do know that consumers are likely going to be getting more generous tax refunds early in the year, so that could support some consumer spending. We also know that there are tax incentives for spending by businesses on property, plant and equipment. So all that capital expenditures that should provide a little bit of a boost as well. And the fact that the fed seems to really have this almost like do no harm philosophy at the moment, they’re probably not going to cut early in the year, but it seems like it would be a really high bar for them to have to hike. So I just think that given some of that stimulus situation, the fed not necessarily being your enemy. I think that’s really what sets us up for actually a maybe re acceleration of growth going into 2026.
Caroline Woods
Okay. We’ll get to the fed in just a second. But first I want to ask you about the Tuesday jobs report this week. Sort of unusual. We also have a CPI print later in the week. What picture will that data paint? Will it show this kind of turning the corner a point if you will.
Brian Jacobsen
I think that the data we’re going to get is from the October and November period, and where that could show that in October, basically it was still negative payroll growth, especially if you adjust for what economists have known as the overstatement of payroll growth. Back in August, the Bureau of Labor Statistics said that they had overestimated the level of payrolls all the way up until March.
Brian Jacobsen
So that’s going to continue. So if you kind of handicap that by about the 60,000, it’s probably going to be a negative number. November could be negative but not as negative. The real turning point that I’m really watching is with the ADP their weekly payroll number. Last week when it was after Thanksgiving, it showed that it finally turned slightly positive.
Brian Jacobsen
And I think that we are showing some signs that that trend could continue. So the Tuesday number that we get it because it’s for October and November, it’s probably not going to reflect that turning point quite yet.
Caroline Woods
So a turning point for the the labor market, although we might not see it quite yet. What about in terms of inflation?
Brian Jacobsen
In terms of inflation? I think that we are seeing the volatility. If you think about where we were right after the tariffs were announced. There was an increase in goods prices. It shifted from a decline in goods prices year over year towards moving towards an increase in goods prices. But the service prices, especially when we’re looking at shelter costs, new rents, we know that those are actually negative year over year.
Brian Jacobsen
So we could continue to see some of that sticky inflation with goods prices. But with the services inflation beginning to moderate and continuing that descent. And just given that the consumer basket is much more heavily biased towards services than goods, the overall pace of inflation, we think is going to really simmer down towards like maybe 2.5% by the end of 2026.
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