The U.S. economy continues to power through the uncertainty caused by the Iran War and the subsequent spike in energy prices. AI-led tech investment has been a key support for the U.S. economy and an engine for growth.
The Iran conflict has pushed crude oil and wholesale prices higher, ramping up inflationary pressures. While inflation cooled in May, those pressures will likely linger for months as increased transportation costs and spiking prices for raw materials, such as plastic resins and fertilizers, continue to pass through to finished goods prices. It will take six months for supplies of natural gas liquids and crude oil to be replenished to prior levels. In the meantime, expect the impacts of higher crude oil prices to ripple through the global economy, keeping shipping costs high—particularly for goods moving out of China—and reinforcing cost pressures across supply chains.
U.S. gasoline prices appear to have peaked in late May, offering a potential turning point for consumers after a period of sustained increases. For the U.S. consumer, three positive drivers remain intact: tax incentives for consumers and businesses, contained tariffs, and continued investment in AI and technology spending. Personal federal tax refunds were 18.3% higher than last year, providing a boost to consumers, while high-income taxpayers saw substantially reduced tax bills. Additionally, the effective U.S. tariff rate dropped to 11.1% from roughly 15% just six months ago.
Consumer confidence rebounded from recent lows as inflation concerns moderated. The housing market showed resilience, with existing home sales rising and prices increasing for a fourth consecutive month, suggesting that underlying economic activity continues despite ongoing cost pressures.
Jobs growth has improved, averaging 188,000 per month over the past three months, while the unemployment rate has held steady over that span. Expect reshoring to continue to support growth along with construction-related work and logistics jobs. Heavy automation and mechanization will likely mute job creation in U.S. manufacturing.
Kevin Warsh begins as Federal Reserve (Fed) chair with the June Federal Open Market Committee (FOMC) meeting. It will take some time for him to begin putting his mark on Fed policies. In the meantime, the Fed remains on hold for now, taking a wait-and-see stance toward oil-induced inflation and recent labor market resilience.
Bottom line
The U.S. economy appears to be demonstrating resilience despite geopolitical uncertainty. A healthy labor market and a recent rise in manufacturing and services activity point to renewed economic momentum, while inflation dynamics remain mixed. Broader data suggest moderating inflation alongside steady growth, with stabilizing energy prices offering near-term relief to consumers and supporting purchasing power.
