The U.S. economy continues to do what it has done best over the past year: refuse to fit neatly into a single narrative. Confidence is soft but spending holds up. Housing is stabilizing but bifurcated. Tariffs are legally struck down, then quickly replaced. Inflation is easing, except where AI and geopolitics have other plans. If 2025 was about resilience, early 2026 is about redistribution, of income, inflation pressures and investment momentum.

Executive Summary

• Consumer confidence improved modestly but remains historically weak as tariff uncertainty resurfaces.
• The labor market is stabilizing, with layoffs contained and unemployment likely to drift lower over 2026.
• Housing appears to be finding a bottom, supported by lower mortgage rates and tight inventories, though regional divergence persists.
• Inflation is easing broadly, but AI-driven demand and trade volatility are creating selective price pressures.
• A surge in tax refunds may support near-term spending, though the boost may be less potent given income distribution effects.
• Tariff policy and Middle East tensions represent the largest near-term macro wildcards.

The Consumer: Soft Confidence, Solid Spending
Consumer confidence ticked up to 91.2 in February from 89 in January, though it remains below its historical average. Importantly, the survey closed before the Supreme Court ruling on tariffs and the subsequent White House announcement of a new global tariff, meaning downside risks to sentiment may not yet be fully captured.

Consumers’ year-ahead inflation expectations dipped slightly to 5.5% from 5.6%, a reminder that expectations remain elevated even as headline inflation cools.

Yet spending continues. Oxford Economics expects consumption growth to average 2.5% in 2026, supported by real income growth and a strong tax refund season. That tax season is meaningful: aggregate refunds are expected to rise 19% year over year, with the average refund increasing 21% to $3,813. However, much of the tax benefit skews toward middle- and upper-middle-income households, groups more likely to save incremental income than spend it. In other words: tax refund stimulus is throwing a party, but the marginal propensity to consume may not RSVP.

• Key Takeaway: The consumer remains resilient, but increasingly bifurcated. Refund-fueled spending may support Q1/Q2 activity, but distribution effects limit the upside.

Labor Market: Stable Is the New Strong
Initial jobless claims rose modestly to 212,000, with the four-week average at 220,250, levels consistent with a low pace of layoffs. Continued claims fell to 1.833 million, reinforcing the view that the labor market is not deteriorating. It still seems likely that the Fed will remain on hold until June before cutting rates.

Interestingly, despite survey-based labor market softness, structural labor supply constraints (lower immigration and aging demographics) reduce the job growth needed to stabilize unemployment. Given this dynamic, it would not be a surprise for unemployment to trend downward over 2026. This is an important nuance: stabilization does not require acceleration.

• Key Takeaway: Layoffs remain contained, labor supply constraints are tightening, and the Fed’s easing cycle likely resumes mid-year, not sooner, given current circumstances.

Housing: Finding a Floor, not a Boom
Home price growth is stabilizing. The Case-Shiller index rose 0.4% month over month in December, though annual growth slowed to 1.3% year over year. The FHFA index rose 0.1% month over month, with annual growth at 1.8%. A sharp decline in inventory helped prevent national price growth from turning negative.

Construction spending rose 0.3% month over month in December, driven largely by housing. Mortgage rates recently dipped below 6% for the first time since 2022, supporting demand. However, the story is bifurcated: private nonresidential construction remains vulnerable amid policy uncertainty. Housing is doing the heavy lifting, but it is lifting only incrementally.

• Key Takeaway: Housing is stabilizing on tight supply and lower rates. It is more like it found a floor, than turned into a frenzy.

Inflation: Easing Broadly, Sticky Selectively
January Producer Price Index (PPI) rose 0.5% month over month, leaving annual inflation at 2.8% year over year, down from 3%. Core PPI is tracking at 3.4% year over year. Oxford Economics PCE nowcast points to 0.3% headline and 0.4% core monthly gains, keeping headline PCE at 2.9% and core around 3.1%.

Goods inflation momentum has eased materially, with core goods running below 2% annualized. But two thorns remain:

1. Trade Volatility: the President has implemented a new 10% global tariff, potentially rising to 15%. This puts the estimate for the effective tariff rate at 10.7%, rising to 11.9% under a 15% regime. While macro effects are modest, trade-related service prices have been elevated.
2. AI-Driven Price Pressures: communications equipment prices jumped 8.7% in January. Producer prices for electronic components are up 6.5% year over year due to DRAM shortages.

AI is simultaneously disinflationary in productivity and inflationary in hardware, Schrödinger’s supply shock.

• Key Takeaway: Inflation is easing overall, but AI infrastructure demand and trade volatility are keeping select sectors hot.

Geopolitical Risk: The Oil Wildcard
US-Iran tensions represent a meaningful tail risk. A scenario reducing Strait of Hormuz shipping by 50% could remove ~4 million barrels per day from global supply, a shock comparable to historical geopolitical crises. A sustained oil spike would likely delay Fed easing due to second-round inflation risks. In short: inflation may be cooling but oil can always crash the party.

• Key Takeaway: Energy remains the primary upside inflation risk and the largest threat to the Fed’s easing timeline.

Final Thoughts: Redistribution, Not Recession
The macro environment is not deteriorating, it is redistributing. Growth remains near trend. Consumption is slowing modestly. Inflation gradually easing, though not without pockets of resistance. Policy uncertainty is elevated but not yet economically destabilizing.

We are navigating an economy defined less by collapse and more by crosscurrents: tariff resets, AI investment waves, fiscal distribution shifts and geopolitical tension. If 2024 was about resilience, and 2025 about recalibration, 2026 may be about reallocation – of capital, labor and inflation pressures. 

Oxford Financial Group, Ltd. is a SEC-registered investment adviser. Registration does not imply a certain level of skill or training. The information provided is for general informational purposes only and should not be considered investment, tax, or legal advice. Opinions are those of the author and are subject to change based on market, regulatory or economic conditions. Forward-looking statements are opinions and/or estimates and are not guarantees of future results. Data and opinions are based on sources believed to be reliable, including unaffiliated third parties such as Oxford Economics, but their accuracy cannot be guaranteed. Past performance is not indicative of future results. See important disclosures and disclaimers at https://ofgltd.com/home/disclaimers. OFG-2602-47