October 2025 Economic Advisor Now Available!

The October 2025 issue of the NFFS Economic Advisor is now available for all NFFS members. 

FEATURED ARTICLE

A Closer Look: The U.S. Economy – Rowing With the Current:  Planning for 2026 Growth
by Jenna Allen, ITR Economics

Businesses should prepare for 2026’s inflation-tinged, mild macroeconomic growth environment by focusing on their industry’s trends and increasing efficiencies or competitive advantages amid margin pressures.

As 2025 winds down, businesses are setting budgets and goals for 2026. While this year has brought its share of uncertainty — tariffs, inflationary pressures, and now a government shutdown — the broader macroeconomic landscape shows that the US economy is chugging along. For most companies, 2026 should offer an opportunity to row with the current rather than against it.

Why We Are Not Changing Our Outlook

With the ongoing federal government shutdown moving into week three as of this writing, some clients are asking whether we have changed our macroeconomic outlook. The answer is no. Modern shutdowns are a recurring feature of American politics. Even the longest government shutdown, the 35-day closure in 2018-19, had minimal measurable economic effect (just 0.05% of GDP, the majority of which was expected to be recovered later that year). Shutdowns delay some spending and disrupt many federal workers’ lives, but they have not historically derailed the broader business cycle. However, local effects may be noticeable in regions heavily saturated by government workers. The private sector typically moves forward.

Evidence Supporting Mild Growth in 2026

Economic fundamentals point toward mild growth next year. Financial conditions remain accommodative: money supply growth is exceeding inflation, bank lending is supporting liquidity, and credit-risk premiums are low overall despite some jitters related to auto loans and non-bank financial institutions’ loans.

The consumer sector, which drives roughly two-thirds of US GDP, is solid. The ITR Retail Sales Leading Indicator™ has trended upward, and inflation-adjusted incomes are rising, albeit at a milder-than-average pace. The US Homeownership Rate is trending at around 65%, and many households have seen their balance sheets strengthen thanks to high housing and equity values. These income and wealth effects will drive consumer spending even though consumer confidence — a poor predictor of consumer spending — is low as consumers show their annoyance with high prices. Consumers on the lower end of the income spectrum may struggle to keep up.

In the commercial sector, sentiment has improved. The US Small Business Optimism Index is rebounding, and overall US Domestic Corporate Profits are rising, though at a slowing pace. Businesses are investing in automation and productivity to offset labor shortages and margin pressures, with new orders growth signaling readiness for expansion. Globally, leading indicators point to a cautiously improving environment.

Sector Nuance and Planning Implications

Not all markets will move in lockstep. Some discretionary and interest-sensitive markets will continue to face headwinds from somewhat sticky interest rates. Nonetheless, the demographics driving the majority of consumer and business activity remain on solid footing.

Given this landscape, business planning should balance optimism with discipline:

•  Set realistic targets. The macroeconomic evidence supports gradual acceleration next year; understanding the likely performance of your industry and region is key as well, given that there are significant differences in performance in this cycle.

•  Monitor inventory ratios closely. Some improvement in demand could lead to widening lead times, an issue that could be exacerbated further by supply chains adjusting to tariffs.

•  The labor market will remain tight as the population ages and nears retirement. Plan for modestly higher wage adjustments.

Uncertainty is part of every cycle, but it should not paralyze your planning. History shows the economy adapts quickly even amid political standoffs like the current shutdown. Inflation will support nominal revenue gains but compress margins. Ensure that your plans include a way to manage efficiency and control costs without alienating employees or customers.

Also in this month's Advisor:

• ITR's Macroeconomic Outlook:  "Congress failed to appropriate funds for fiscal year 2026, temporarily suspending many federal services at the start of October. Much of the economic data from government sources is not being maintained in the interim and is therefore not updated in this edition of Advisor. However, we have updated all analysis to the fullest extent possible. We continue to monitor data from private sources, which includes many of the leading indicators businesses should be focusing on to drive their decisions going forward." 
• Make Your Move:  "Factors such as AI adoption and investment, along with evolving trade policy, are creating disparate impacts. Identify the areas where your business is best positioned to grow and those where it is most at risk."
• Investor Update:  "The S&P 500 rose by a stronger-than normal 2.9% in September. Within the S&P 500, winners include communications, technology, consumer discretionary, and financial, which are up more than 20% year to date, but about 37% of stocks are down year to date. This bifurcated set of outcomes is evident in our client base as well. Ensure that you understand your portfolio’s risk profile thoroughly." 
• ITR Economics' Long Term View:  "2025 - Mild Growth, 2026 - Growth,  2027 - Slowing Growth."
• Leading Indicator Snapshot:  "Leading indicator signals remain mixed, but they generally suggest mild growth ahead.  Although the US OECD Leading Indicator is flashing red on a rate-of-change basis, the monthly trend is at a 41-month high. On net, this indicator is also signaling that mild growth is probable.  Heightened uncertainty is likely playing a large role in the mixed signals we are seeing. Despite prevailing unease, economic fundamentals remain sound, with manageable consumer debt levels and rising real incomes."
• Manufacturing Industry Analysis:  "US Total Manufacturing in the 12 months through August was 0.5% above the year-ago level; growth is accelerating.  Annual US Total Manufacturing Production through August was accelerating in growth.  Manufacturing leading indicators from private data sources suggest that mild business cycle rise for Manufacturing Production is probable."
• State-by-State: Prices:  "US Home Prices in the three months through July were 2.7% above the same period one year ago.  The pace of ascent is the slowest it has been in 13 years."
• Reader's Forum:  "With volatile trade policy and the ongoing government shutdown, what measures should be taken when planning a budge for 2026?"  Haley Sienkiewicz, Economist at ITR Economics™, answers: