2026 midyear economic outlook: Growth prevails amid uncertainty

Russell Price, Chief Economist – Ameriprise Financial

July 20, 2026 

2026 began with lingering concerns about inflation, labor market momentum and global uncertainty. Those concerns intensified in late February as conflict in the Middle East added pressure to energy markets and clouded the economic outlook. 

As we enter the second half of the year, however, the economic backdrop has improved considerably. Gasoline prices have retreated, labor market conditions have strengthened and business investment has proven more resilient than we anticipated. Combined with healthy consumer finances and renewed momentum in manufacturing, these developments suggest the U.S. economy has weathered recent geopolitical disruptions better than expected and remains positioned for solid growth through year-end. 

Looking ahead, the economy’s path will depend on the forces supporting growth and the risks that could slow it. 

4 economic forces supporting growth 

In our view, several fundamental drivers are helping sustain economic momentum and reinforce our expectation for continued growth through the second half of 2026.  

1. Sound consumer finances: Consumers remain in good financial shape in our view with relatively low debt-to-income ratios, low unemployment, stable home values and healthy financial market conditions. As we look to the second half of the year, we believe consumers remain in good financial health and can continue to spend at a solid pace. 

2. Strong business investment: The current business spending cycle, spurred by artificial intelligence, may be the strongest investment cycle since Y2K. We could be in the early innings of AI investment spending, but the payoff for early developers may not be as smooth as stock investors hope. While business investment is a relatively modest 18% of U.S. economic activity, it was up 8.5% year-over-year in the first quarter and showed signs of accelerating through the second quarter.  

3. Manufacturing resurgence: The most notable source of economic support may be the accelerating demand for manufactured goods. Until recently, U.S. manufacturing was in a 3-year slump. AI investments, higher national defense spending and solid consumer demand have improved conditions noticeably in recent months. In May, shipments of capital goods from U.S. factories were nearly 8% higher year-over-year.   

4. Improving job market: In the fourth quarter of last year, the U.S. economy generated just 8,000 net new jobs per month. Through June, the 3-month average has increased to 99,000 per month. The unemployment rate, meanwhile, is currently 4.2%, down from December’s 4.4% and we believe it could end the year closer to 4.0%.

4 risks to the economic outlook 

While our outlook for the second half of 2026 remains constructive, several risks could challenge economic growth and contribute to periods of uncertainty: 

1. Iran: The situation with Iran remains a high consequence but low probability risk, at the time of this writing. Although tensions have eased somewhat, renewed conflict or disruptions to global energy supplies could quickly pressure commodity prices, weigh on investor confidence and create broader economic uncertainty. 

2. Inflation pressures: Crude oil prices have declined in recent weeks amid hopes of a peace deal with Iran. Inflation, however, remains high, and energy prices could climb once again without a lasting peace agreement. Electronics prices have also been rising due to short supplies of some key components.  

3. Federal Reserve response: The Federal Reserve continues to face a delicate balancing act between bringing inflation under control and supporting economic growth. If inflation proves more persistent than expected, policymakers may be forced to keep interest rates higher for longer or delay potential rate cuts. Such a scenario could weigh on business investment, consumer spending and overall economic activity. 

4. Housing market remains sluggish: Housing’s spring selling season was a casualty of the recent surge in inflation and resulting rise in interest rates. We believe the 30-year fixed mortgage rate, currently around 6.5%, could decline modestly over the second half of the year if inflation rates ease as we currently expect. 

Bottom line: Our 2026 midyear economic growth outlook 

Overall, we started the year forecasting U.S. real economic growth this year of about +2.6%. We lowered our projection to 2.2% after the start of the Iran conflict, but have since re-upped our forecast to 2.5% based on sound consumer finances and better-than-expected business investment. While several risks could act as headwinds in the months ahead, the underlying drivers of growth remain intact and, in our view, should help support continued economic expansion through year-end. 

Stay confident in any economic environment 

As the economic landscape evolves, an Ameriprise financial advisor can help you evaluate opportunities, manage risks and stay focused on what matters most to your financial future.