Economic Update 6/24/26

Top 5 Takeaways This Week

• Manufacturing and industrial production continued to strengthen during May. 

• Retail sales posted their strongest year-over-year gain since early 2023, reflecting resilient consumer spending.

• Pending home sales continued to improve, supporting a more constructive housing outlook. 

• The Federal Reserve maintained interest rates while signaling operational changes under new leadership.

• Our outlook for both the economy and financial markets remains positive. 

During the past week, we have had various economic releases showing that the U.S. economy is beginning to rebound from the somewhat slower growth experienced during the prior two quarters. Surprisingly, this is occurring despite some of the economic hurdles associated with the war and the ongoing conflict involving Iran.

One of the key components of domestic growth centers around manufacturing. In May, U.S. manufacturing rose by 1.4% on a year-over-year basis. This compared favorably to the 1.2% gain in April and was the strongest month since November of last year.

Overall, industrial production, on a trailing twelve-month basis, rose by 1.7% during May. Again, this compared very favorably to the April level of 1.4% and was also the highest growth rate since November of 2025. These numbers alone show that the second quarter should reflect a rebound in economic growth when GDP releases are available in late July.

Another positive sign for the economy was a surge of 6.9% in retail sales, on a year-over-year basis, for the month of May. This compared quite favorably with the April release of 4.8%. Even more surprising, this was the largest increase in annual Retail Sales since January of 2023.  Now, to be totally upfront, a significant portion of this gain was the result of higher sales at gasoline stations due to the rise in fuel costs. However, the numbers do reflect a stronger consumer sector, and we should see spending move to other areas of the economy as gasoline prices begin to come down.

Finally, in terms of economic releases, Pending Home Sales rose by 4.8% on a trailing twelve-month basis during the month of May. This represents the highest annual increase since November of 2024. Mortgage rates have come down slightly and this is having a positive effect on home sales.

Given the importance of the housing market to the economy, as well as the previously mentioned economic releases, this adds further credibility to our belief that the U.S. economy is beginning to show signs of renewed growth, and second-quarter GDP should confirm these expectations when released in late July.

Another major development affecting the economic story here in the U.S. is the change of leadership at the Federal Reserve. The new Fed Chairman, Kevin Warsh, assumed the position from Jerome Powell on May 22nd.  The Fed's first meeting with the new Chairman was last week. While the result of the two-day meeting was to keep the Federal Funds Rate unchanged, Chairman Warsh did indicate that several changes can be expected regarding how the Fed operates going forward.

He has initiated various task forces to evaluate how the Fed will work and provide information to the public in the future. He has stated previously that he wants less communication from the Fed and that responses will be more controlled. He has also made clear that he wants to reduce the Fed's balance sheet over time.

These changes will obviously be evaluated and judged by the investment community as they evolve. I think the key for any new Fed Chairman is to gain the respect and confidence of the economic and investment community. I have confidence that Kevin Warsh will accomplish that.

Considering all the above, our outlook for the U.S. economy remains positive. This also translates to the financial markets. I think interest rates will continue to fall and provide a sound base for both the fixed-income and equity markets.

As we approach the end of June, let's think about the importance of July 4th and the 250th birthday of our Great Country. Let's appreciate how we got here and what each of us can do to make sure the U.S. remains the best and strongest country in the world. Let's also pause to give thanks to the brave soldiers and military personnel, past and present, who fought to get us to our 250th year and for the sacrifices they have made.