U.S. Economic Outlook: Slower Growth and Sticky Inflation

U.S. growth is slowing while sticky inflation and a weakening labor and housing market give the Federal Reserve reasons to keep rates unchanged in September.

• Real GDP grew at a 1.5% annualized rate in the second quarter of 2026, down from 2.1% in the first quarter, but Welch & Forbes still projects full-year growth near 2%.
• Year-over-year PCE inflation was 3.3%, with headline PCE at 3.7%; consumer spending stalled after strong May and June gains, while real durable-goods purchases declined.
• Housing starts fell 12.4% to a 1.239 million annualized rate, existing-home sales dropped 1.7% to 4.06 million, and the median existing-home price fell 2% month over month to $434,100.
• July nonfarm payrolls fell by 23,000 versus expectations for an 83,000 increase, while downward revisions to May and June totaled 103,000 and wage growth slowed to 3.2% year over year.
• Manufacturing remained in expansion, with the August PMI at 54.6% versus 55.6% in July, while a 1.5% decline in energy prices temporarily reduced headline inflation.

Takeaway: Cooling demand, housing weakness, and softer employment support a September pause in rate hikes, but inflation could rebound if energy prices stop falling; manufacturing resilience and continued consumer strength remain offsets.