More Economic Growth Ahead

Financial FAQs

“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2026 is 5.1 percent on September 17, unchanged from September 16 after rounding. After this morning’s housing starts release from the US Census Bureau, the nowcast of third-quarter real residential investment growth decreased from -4.3 percent to -4.7 percent.”

GDPNow

This five-year plus cycle of business growth that began after the COVID-19 recession could continue for years. I have become much more upbeat about our economic future.

All signs are pointing to perhaps a large jump in economic growth for several years, despite the geopolitical chaos. Why? Trump and Republican actions may not be as damaging to the world economies from his tariffs and desire to have a second Gilded Age that has created so many robber barons and the massive concentration of wealth.

The massive A.I. investments and stock market highs say that it could continue despite the reordering of world markets amid so much geopolitical uncertainty. This could outweigh the effects from tariffs and the unending Iran war that continue to elevate inflation. Growth isn’t being boosted by just the A.I. build out that is projected to cost some $800B, more than all residential real estate investment.

The manufacturing and service sector activity as measured by the latest Institute of Supply Management indexes are still expanding, causing long-term interest rates to rise as well.

“In August, the Services PMI^® registered 55.4 percent, an increase of 1.3 percentage points compared to July’s figure of 54.1 percent. The Business Activity Index remained in expansion territory in August, increasing 2.6 percentage points to 61.7 percent from July’s reading of 59.1 percent.”

“The Manufacturing PMI^® registered 54.6 percent in August, 1 percentage point below the July figure of 55.6 percent. The overall economy continued in expansion for the 22nd month in a row. (A Manufacturing PMI^® above 47.5 percent, over a period of time, generally indicates an expansion of the overall economy.)”

The Atlanta Fed’s GDPNow estimate of third quarter GDP growth is 5.1 percent for the second consecutive month, above most economists’ predictions. Consumers and governments are on a spending spree, as well as the construction of A.I. data centers that are blanketing the country.

The longest positive growth cycle to date was during the Obama and Trump I administrations—2009 to 2020, slightly eclipsing the 1990’s Clinton era that ended with four years of budget surpluses.

S&P also chimed in with its composite output index growing the fastest in five years. But will it withstand the Federal Reserve rate hike cycle just begun, with maybe a second rate boost this year?

The key to prolonging this business cycle is also the labor market, which has been subpar until now. The August 162,000 total nonfarm payroll employment was a total surprise, given the average monthly gain of just 31,000 over the prior 12 months.

Surprisingly, American shoppers are out in force for the first time this fall after several pauses as they rushed to get ahead of rising prices for the holidays, I said last week.

So corporations must keep hiring, in spite of the looming fear of A.I. robots supplanting many jobs.

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Good Retail Sales For Holidays

 Financial FAQs

“Advance estimates of U.S. retail and food services sales for August 2026, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $773.9 billion, up 1.2 percent (±0.4 percent) from the previous month, and up 6.0 percent (±0.5 percent) from August 2025.” Census Bureau

FREDretailsales

What a difference in just a month! I was overly pessimistic earlier this year when consumers’ confidence was declining on how consumers would behave during the holidays because of the energy shortages and higher tariffs.

Surprisingly, American shoppers are out in force for the first time this fall after several pauses as they rushed to get ahead of rising prices for the holidays.

Retail sales jumped +1.2 percent in August after declining -0.7 percent in July. That’s a huge rise with some inflation indexes above 5 percent. It seems homeowners and investors benefiting from the financial markets can afford more dining out and leisure travel these days.

For good reason. The 162,000 new payroll jobs tallied in August may have emboldened them after miniscule job gains the prior three months. Add in that third quarter economic growth predictions are now clustered around 4 percent because of the A.I. build out and record corporate profits after very meek growth in Q1 and Q2.

The August 162,000 total nonfarm payroll employment was a total surprise, given the average monthly gain of just 31,000 over the prior 12 months. Why the sudden rise? These are largely new service sector jobs, which means summertime travel and leisure activities pick up, schools will soon begin, and nonresidential construction of the A.I. data centers is going full speed.

Employment in food services and drinking places increased by 59,000 in August, well above the average monthly gain of 12,000 over the prior 12 months as well. Local government education added 42,000 jobs in August, offsetting a decrease in the prior month.

Will this reverse the severe job decline since early 2024 at the start of the second Trump administration? It will depend on how consumers are feeling about the economy as I said.

They aren’t feeling that well at present. According to Joanne Hsu, the University of Michigan sentiment survey Director:

“Democrats and Republicans alike posted sizable declines (in sentiments), while independents were little changed from August. Year-ahead expectations for both personal finances and business conditions plunged. With a resurgence in fuel prices and trade tensions, consumers anticipate greater pressures on their pocketbooks to come.”

But this is before the new tariffs on our largest trading partner’s Canadian exports kick in that will boost construction costs and vehicle prices even higher.

Maybe some consumers want to enjoy the present while they can rather than worry about the future and what the $trillions being invested in A.I. might do to the job market. What do they know?

LATE BULLETIN—The Federal Reserve just announced a +0.25 percent raise in their Fed Funds rate for the first time in three years, with maybe more raises to come because of the worsening Mideast conflict.

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Not A Merry Christmas?

 Financial FAQs

“Personal income increased $115.1 billion (0.4 percent at a monthly rate) in July, according to estimates released today by the U.S. Bureau of Economic Analysis (BEA). Disposable personal income (DPI)—personal income less personal current taxes—increased $125.9 billion (0.5 percent), and personal consumption expenditures (PCE) increased $36.3 billion (0.2 percent).” BEA.gov

 

BEA.gov

We are fast approaching the shopping season and there are growing worries about consumers ability to soldier on the rest of year with the sudden drop (-0.6%)in July retail sales. They seem to be running out of money. And we know what that means, since consumer spending powers most economic activity

The picture of declining consumer incomes in the BEA’s Personal Consumption Expenditures graph is disheartening, to say the least, and could precipitate a recession sooner rather than later. It’s not only because the job market is shrinking, but our working population as well.

The U.S. economy lost -23,000 payroll jobs this July after gaining just +20,000 jobs in July. It’s the picture of a labor market stuck in neutral; most employers are neither hiring nor firing.

Yet the unemployment rate has been stuck at a fairly low 4.2 percent for months. Why wouldn’t employers hire more workers? Because there’s not as much demand for consumer products, which powers most economic growth. And demand is declining, not only because of the soaring inflation—3.7 percent in the PCE report above—but fewer shoppers.

Population growth in the United States has slowed significantly with an increase of only 1.8 million, or 0.5%, between July 1, 2024, and July 1, 2025, according to the new Vintage 2025 population estimates released today by the U.S. CensusBureau.

And we know why.

“The slowdown in U.S. population growth is largely due to a historic decline in net international migration, which dropped from 2.7 million to 1.3 million in the period from July 2024 through June 2025,” said Christine Hartley, assistant division chief for Estimates and Projections at the Census Bureau.

Low population growth = slow economic growth = fewer jobs, in other words. The decline in “net international migration” is the culprit, to no one’s surprise. Trump is bragging about the tens of thousands of deportations in his single-minded assault on undocumented immigrants; many who have worked long enough in the U.S. to raise children who are citizens now serving in the military.

Those believing that inflation will decline as more companies adopt A.I. software to replace those workers and improve labor productivity will be sadly disappointed. The bond market selloff is the first warning that higher interest rates are here to stay—as long as higher tariffs and ongoing wars raise the risk factors that govern economic activity.

“Government bond yields are hitting multi-decade highs, reflecting anxiety about debt levels, deficits and inflation. The effects will extend to mortgages, business loans and other types of credit,” said the NYTimes at this writing.

Who will buy the products if there are fewer shoppers? That is Silicon Valley’s A.I. miscalculation. Consumers already know this, and their declining personal savings rate to 3 percent (in graph) highlights this fact. They have less to spend, period.

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Not Another Greenspan?

 Popular Economics

“The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent on a seasonally adjusted basis in July after falling 0.4 percent in June, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.4 percent before seasonal adjustment.” BLS.gov

FREDcpi

Kevin Warsh, the new Federal Reserve Chairman sounded hawkish in his first speech at the Fed’s annual Jackson Hole conference, as if an interest rate hike was needed soon to fight rising inflation.

"While the PCE and CPI (inflation) readings were better than expected, they do not tell me that underlying trends have meaningfully improved, and we must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do."

But Warsh is a true-red Republican appointed by President Trump and we know that Trump wants to keep interest rates as low as possible to pay for the tariffs and war he has started and will go at any lengths to make it happen, including attempting to fire Fed Governors (Lisa Cook).

Good luck is all I can say. Warsh confronts a scenario that is frighteningly similar to that of Alan Greenspan’s tenure as Fed Chairman in early 2000. President GW Bush needed ultra-low interest rates to pay for his wars on terror after 9/11. But he also passed huge tax cuts that Republicans didn’t want to pay for.

And Greenspan worked to assist him in financing the invasions of Iraq and Afghanistan by convincing his Fed Governors to hold down interest rates for as long as possible—too long it turned out. The Fed Funds rate was held at 1 percent while CPI inflation was ultimately rising to 5.3 percent by 2008, igniting the housing bubble that ultimately burst, thus creating the Great Recession.

Maybe Greenspan was at heart an inflation dove, because the Fed got behind the inflation curve and didn’t raise its Fed Funds rate to 5.25 percent until 2006, which was too late to stop the housing bubble and soaring inflation.

So does Chairman Warsh’s pronouncement that inflation will be tackled, no matter the consequences, to be believed? The Fed Governors have been sounding equally hawkish on the need to fight inflation. And "short-term interest rates are predominant tool to achieve the dual mandate," said Warsh (i.e., stable prices and maximum employment).

Yet U.S. debt is growing faster than the economy, and the job market is barely growing. A.I. won’t be the savior if consumers run out of money because they no longer have a job. The BLS’s latest benchmark revision of payroll jobs estimate implied that non-seasonally adjusted nonfarm payroll gains averaged about 11,000 per month through March over the preceding 12 months instead of 18,000, reports Reuters.

So will Warsh and the Fed be able to withstand the merciless vituperation sure to come from the child-like brain of Donald Trump and maintain the inflation fight when the going gets tough?

We don’t want another bubble to burst with A.I.’s investment bubble growing every larger on top of the tariffs and endless wars.

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Inflation is Here to Stay

Financial FAQs

“The Producer Price Index for final demand was unchanged in July, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. On an unadjusted basis, the index for final demand increased 4.7 percent for the 12 months ended in July”. BLS

FREDppi

The wholesale PPI is a sign that inflation is too high to raise hopes for any decrease in interest rates anytime soon. And because the PPI measures the cost of raw materials that go into retail products, it foretells how consumer prices will behave in the coming months.

In fact, August PPI also tells us why interest rates are soaring in the bond markets as well that set mortgage rates. It’s why 30-year fixed mortgage rates have risen to 6.67 percent at this writing.

So why are interest rates so high at this time? It’s not only the ongoing wars creating shortages in everything (mainly Iran and Ukraine) but the huge demand for money to build out the AI data centers. Elom Musk’s SpaceX IPO got ahead of the crowd by netting $75 billion, which delayed IPOs for Open A and Anthropic among others.

The IEEE Technology Society predicts that the AI build out will cost $363 to $400 billion. And the investments are mostly borrowed money which is driving up bond yields even higher, crowding out funding for much-needed government programs.

The 10-year Treasury yield is 4.70 percent today, up from its low of 4.1 percent April 3, 2025 (tariff liberation again).

And that’s not all. Once up and running, the amount of water and electrical power needed to operate the data centers drives up electricity prices as well. And global warming will be exacerbated from the excess amounts of heat generated.

Lawrence Berkeley National Laboratory projects U.S. data center electricity demand will grow from 176 TWh in 2023 (about 4.4% of total U.S. electricity) to 325–580 TWh by 2028 (6.7–12% of total U.S. electricity)

Tech financial analysts worry that enthusiasm for AI has turned into a bubble that is reminiscent of the mania around the  Internet’s infrastructure build-out boom from 1998-2000, I have also been saying.  During that time period, telecom network providers spent over $100 billion blanketing the country with fiber optic cables based on the belief that the Internet’s growth would be so explosive that such massive investments were justified.  The “talk of the town” during those years was the “All Optical Network,” with ultra-long haul optical transceiver, photonic switches and optical add/drop multiplexers.  27 years later, it still has not been realized anywhere in the world.

The annual PPI held at 4.7 percent for the past two months, down from 5.5 percent, which is the stratosphere as far as inflation is concerned. The last time it even approached the Fed’s 2 percent target was April 2025, the month Trump began his illegal liberation day tariffs that is now refunding, per the courts.

That’s probably why Q1 2026 GDP growth was just 2.1 percent, and the advance Q2 estimate was 1.5 percent, as I’ve said.

The real lesson(s) from the self-induced geopolitical uncertainty by the Trump administration is that many safeguards are being reduced or eliminated that protect the American economy and American citizens.   

These safeguards include paying down the national debt instead of tax cuts that increase it, funding scientific research instead of reducing it, and expanding public health care. 

Without those safeguards it's just a matter of time before another recession.

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Where's the Inflation?

Financial FAQs

“Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East…Inflation remains elevated relative to the Committee's 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy.” FOMC

MarketWatch

New Fed Chair Kevin Warsh wouldn’t say when the Fed would join the chorus calling for a rate hike at his June press conference. He was waiting to hear from task forces studying problem! When have we heard this before?

The U.S. and Iran keep bombing each other, and Iran has just said they are in no hurry to negotiate another ceasefire, while Trump just found another way to keep tariffs high.

And the bond market and inflation indicators are showing higher inflation ahead. Is there any doubt that the Fed’s Fed Funds rate is going higher, as well, with the Fed’s FOMC statement mentioning “elevated uncertainty” re the Middle East conflict?

The financial markets didn’t like the Fed’s inaction, which is why the market indexes plunged after the FOMC statement—the DOW ended the day down by -1150 pts.

Yet economic disaster is staring Americans in the face, if Trump keeps raising tariffs and can’t stop his Gulf war. It cuts into consumer spending, raising the cost of everything when debt at all levels—national, corporate, and consumers are already at record levels.

Raising the Fed’s interest rate will slow rising inflation by slowing economic growth. The Fed FOMC conclusion that economic activity is “expanding at a solid case” was because of over investment in the AI build out of data centers, almost all of it borrowed money. And many of the AI investors are borrowing from and investing in each other, like Japan’s keiretsu system of interlocking ownerships that impeded them from writing off bad debts when their decades long economic stagnation occurred.

One ‘tell’ of the possibility of a US. recession is that huge new orders for computers and related products jumped 3.1% in June, the government said Monday in its monthly report on durable goods.

The last time there was such a surge in goods investment was during the dot-com era, according to MarketWatch’s Jeffry Bartash. “Over the past year, orders for the AI-related hardware have surged 17%, a level last sustained during the dot-com era more than a quarter of a century ago,” he said.

But the dot-com investments didn’t begin to show enough profit for decades to pay for the investments, hence the 2000 dot-com recession that Alan Greenspan and Nobel Laureate Robert Shiller predicted with their warning that irrational exuberance was blinding investors from reality.

Yet the Fed must act to raise rates sooner or later, since higher inflation is already embedded in consumer surveys, according to the University of Michigan’s sentiment survey:

“Year-ahead inflation expectations ticked down from 4.6% in June to a still-elevated 4.2% this month. The current reading substantially exceeds the 3.4% seen in February before the Iran conflict began, (my bold) along with all 2024 readings. Long-run inflation expectations held steady from last month at 3.3%, remaining a bit higher than the 2.8% to 3.2% range seen in 2024.”

The advance second quarter GDP growth estimate was just 1.5 percent, another casualty of the tariffs and Mideast wars despite the AI investment surge. It’s no wonder the Fed’s Governors are avoiding the obvious; when to begin to restrict credit before inflation becomes entrenched longer term, as it did in the 1970s.

What were the conditions then? Energy supplies were restricted, inflation soared, and economic growth stagnated. Hence the decade of stagflation. Is this a repeat?

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

 

Another Housing Bubble?

 The Mortgage Corner

“WASHINGTON (July 9, 2026) – Existing-home sales decreased by 2.4% month-over-month and increased 2.8% year-over-year, according to the National Association of REALTORS® Existing-Home Sales report. NAR

FRED30yrmortgage

It’s been months since I last wrote about the housing market, and why it’s had such a slow recovery. FRED’s 30-year fixed mortgage graph tells us why, and why we have a housing shortage.

And the 30-year fixed rate mortgage has hovered above 5 percent since 2023, its longest stretch above 5 percent since 2007 and the start of the Great Recession. Lower interest rates would certainly stimulate more housing construction, especially on the affordable end.

But new Fed Chair Kevin Warsh has been repeating that inflation is too high at his congressional hearings and the Fed may have to make some hard choices and become an inflation hawk to bring inflation back to its 2 percent target rate.

If only we still had Ayn Rand disciple and free market lover Alan Greenspan as the Fed Chair! In a similar situation during the GW Bush 2000 decade, Fed Governors resisted raising the Fed rates to help fund the Bush administration’s wars on terror, despite enacting the large Republican tax cuts that caused the first $trillion in federal debt.

A caveat is to be careful what you wish for, since the last such building surge inflated the housing bubble for mostly the wrong reasons.

And the busted housing bubble that led to the Great Recession of 2008-09 also led to the current housing shortage. Can we ever return to the ‘good old days’ when there was enough housing for those that want to own?

It fueled an earlier housing bubble It was the combination of interest rates being held below rising inflation that caused housing prices to increase by double digits for a couple of years and we were left when a massive oversupply of unsold homes.

Right now we have both a demand and supply problem—how to bring down mortgage rates to lure more home buyers, and kick start more housing construction.

The Trump administration is also attempting to talk down interest rates in the face of its massive tax cuts as it has been waging war on several fronts—from attacking Venezuela to Iran, while again ballooning the federal debt.

The 30-year average fixed mortgage was last at a much more affordable 3 percent rate during the COVID-19 pandemic. It is 6.58 percent at this writing and has remained above 6 percent since 2022 when the Fed last raised interest rates to combat inflation as world economies began to recover from COVID.

And we know both home buyers and mortgage lenders are incredibly sensitive to mortgage rates, in part because mortgage lenders have kept credit standards much higher than they were in the lead up to the housing bubble that caused so many defaults. Anyone remember the no-income verification, liar loans of that time?

The National Association of Realtors remain hopeful that the home buyer market will approve.

"The back-and-forth in monthly home sales activity, driven by mild fluctuations in mortgage rates, shows how sensitive home buyers are to affordability conditions,” said NAR Chief Economist Lawrence Yun. “However, job gains—more than half a million since the beginning of the year—will continue to provide support for the housing market.”

But so much is similar to the housing bubble and bust. Trump’s Big Beautiful Tax Bill and Iran war is raising the costs of everything as did Bush’s tax cuts and war on terror.

Are we seeing a housing revival with the slight uptick in existing home sales? Hope springs eternal, as the saying goes. Sales have hovered around 4 million residential units since the busted housing bubble and 2008-09 Great Recession. There has never been enough supply to satisfy the demand of an increasing population since then because the busted housing bubble restricted new home building for almost 10 years, and 30-year fixed rate mortgages have hovered above 6 percent ever since, per the FRED graph.

Higher interest rates are raising construction costs. Trump’s tariffs on steel, copper, lumber and other materials are lifting construction prices and interrupting some jobs. This is while immigration enforcement is worsening worker shortages and delaying projects.

I said last week,

“We get so many things thrown at us in the construction industry,” said Tony Rader, the chief relationship officer at National Roofing Partners, a commercial roofing company in Coppell, Texas. “It just seems like every time we turn around, we’ve got something else to fight.”

The bottom line is too many resources have been diverted to funding wars, not peaceful enterprises since then, leaving little room for more housing construction, or curing our homeless problem.

When will that change?

Harlan Green © 2026

Follow Harlan Green on: https://twitter.com/HarlanGreen