Q2 2026 Wealth Management Insights

Despite the continued negative consumer sentiment surveys, the economy continued to grow in the 2nd quarter.

 

Although the first estimate for the 2nd quarter growth will not be released until late July, the current forecasts from the two real-time Federal Reserve models forecast growth above 2.0%. The Atlanta Federal Reserve’s model is forecasting 2.5% growth, while the New York Federal Reserve’s model is forecasting 2.7%.

 

Although growth remains positive there were clearly areas that “worked” and areas the “did not work.”

 

The driving engine for 2nd quarter GDP growth was business spending. Companies across all industry sectors continue to invest in hardware and software focused on productivity gains. The headlines focused on the massive spending on data centers, artificial intelligence, and semiconductors, but other industry sectors focused on upgrading hardware, software, and infrastructure to increase productivity.

 

The second area that “worked” was the labor market. The near zero growth in jobs in 2025 led many economists and analysts to conclude that we were in a job recession. What we have discovered in 2026 is that the massive slowdown in jobs in 2025 may have been due to the elevated level of uncertainty due to a new administration and fiscal policy.

 

The surprise for 2026 has been that jobs growth resumed. Through May, four out of the five months experienced jobs growth above 160,000 per month with only one month seeing a negative result. 

The major area where this “did not work” was the effort to bring the inflation rate back to 2.0%. Just as we hoped inflation would be defeated, it surged again. This was due to a combination of the war with Iran and the delayed effects of tariffs. The resulting elevated level of prices is negatively impacting the average worker.

 

The second area that “did not work” was consumer spending. The US consumer is showing signs of fatigue and possibly the first stages of exhaustion. Higher prices have reached the point where the real average hourly wage growth has been negative for the last three months (March, April, May). Even though real personal spending grew 2.1% on a year-over-year basis in May, much of that spending is occurring with the high-net-worth households.

 

The lower income households are struggling to pay their bills and are relying on credit cards or drawing down their savings to cover their core expenses.

While the economy continued solid growth in the second quarter, beneath the headlines, we continue to see a bifurcated economy. Strong corporate spending masks a struggling consumer.

 

Going forward, it will be important to monitor whether the current pace of corporate spending continues and whether the current elevated price levels force continued cutbacks from the consumer.