Our economic outlook for the United States
October 14, 2026
Growth momentum firming amid notable business spending
“Recent upward revisions to income data depict a healthier backdrop for consumer spending and underscore an economy that is accelerating as we move into year-end.”
Josh Hirt,
Vanguard Senior U.S. Economist
Growth continues to demonstrate resilience, with activity tracking at a pace consistent with our 2.3% outlook for 2026. Business investment remains a notable source of strength: Through the second quarter, investment ran at a 9.4% pace, exceeding our already strong expectations coming into the year by more than two percentage points. We expect this capital expenditure cycle to remain an important contributor to growth through 2027. Consumer spending is evolving broadly in line with expectations, supported by tax policy tailwinds and the continued benefits of elevated household wealth.
September payrolls rose by 29,000, reinforcing our view that monthly payroll growth will remain unusually volatile, as revised figures show payrolls grew by 133,000 in August and fell by 10,000 in July. We continue to characterize the labor market as resilient but not accelerating. Hiring activity remains extremely subdued, with historically low layoffs being the saving grace in keeping the unemployment rate low. The low-hire, low-fire environment, combined with slower labor supply growth, means relatively modest changes in participation dynamics can generate surprisingly strong or weak payroll prints from one month to the next. We therefore expect the recent seesaw pattern in payroll growth to persist.
A somewhat hotter-than-expected Consumer Price Index (CPI) reading released October 14 doesn’t materially change our inflation outlook. However, we are now tracking core inflation as measured by the Personal Consumption Expenditures (PCE) price index at 3.1%, above our 3% forecast for 2026 (fourth quarter over fourth quarter). The balance of risks continues to skew to the upside, reflecting inflationary effects from higher energy prices. The CPI report increases the risk of a previously unexpected Federal Reserve rate increase in October. We continue to view one additional hike this year as most likely. However, the risk has risen for hikes at each of the Fed’s two remaining meetings this year.
United States economic forecasts
Notes: GDP growth is defined as the fourth-quarter-over-fourth-quarter change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December for each year. Core inflation is the year-over-year percentage change in the Personal Consumption Expenditures price index, excluding volatile food and energy prices, as of December for each year. Monetary policy is the rounded midpoint of the Federal Reserve’s target range for the federal funds rate at year-end.
Source: Vanguard.
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