Is the U.S. Economy Re-Accelerating Into 2026?

Senior Economist Jose Torres joins Cents of Security to unpack three timely signals: upbeat Challenger Gray & Christmas job‑cut/hiring data, one of the decade’s strongest U.S. productivity prints, and the narrowest trade deficit since 2009. We also touch on unemployment claims, small‑cap leadership, and how pending tariff rulings may ripple through rates and earnings.

Mary MacNamara  

Hello everybody and welcome to the Cents of Security Podcast. Today I’m here with the Senior Economist at Interactive Brokers, Jose Torres. Hi Jose. How are you?

Jose Torres  

Hi, Mary. Great to be here. Happy New Year. Great to be back.

Mary MacNamara  

Happy New Year to you too! So today we’re going to talk about economic indicators, and I see three particular topics, productivity. Something called Christmas, but it’s not about the holidays. And then also trade balance.

Jose Torres  

Sure. It’s not Christmas as in the holidays, but the data was particularly cheery. Mary, when you consider the Challenger Gray & Christmas survey depicted this lowest amount of job cuts in December, going back to December of 2022, and hiring intentions also rose pretty strongly.

So together, you know that really raised economic growth projections and quelled slow down worries. We also got DA productivity data, which was buoyant, one of the best numbers in the past decade. The fourth highest excluding COVID, it was the second or third highest. And that’s really terrific because when you have greater productivity, that quells the potential inflationary effects from stronger wages because each worker is producing more output.

So that really helps the whole supply demand dynamics when you have. Higher supply of goods and or services. That’s downward pressure on its price. So that was that was really good news on the productivity front. A trade balance, the trade deficit became, was the narrowest since 2009, going back 17 years, there was a lot of front loading and that data has been particularly volatile.

Opponents of the administration’s onshoring ambitions will point to the volatility and how a lot of the pharmaceutical purchases, the imports were front loaded in other months because that’s really what drove the better than expected reading in terms of a narrower trade deficit was the far pharmaceutical imports.

We just didn’t really import that much during that month. But then folks that are supporters of the onshoring ambitions and President Trump’s goals to bolster American manufacturing, they’re going to point to the fact that it’s been a 17 year low in the trade deficit. So that’s pretty encouraging.

Also, unemployment claims were pretty controlled. They’ve been well tempered. Initial claims came in at 208,000, slightly above the prior week’s, 200,000, slightly below the median estimate of 210,000 continuing claims for the prior week, that ended December 27th or so. Those numbers came in a little above expectations, but nothing to worry about.

In a few sentences, the Challenger, Gray & Christmas data alongside with the unemployment claims really dismissed a lot of worries in the short run that the labor market was running out of steam and. Signaled the potential economic re-acceleration that a lot of us are expecting in 2026, including myself, growth rate full year of 3.4%.

Today we saw a Russell 2000 gauge of small caps that disproportionately benefits from an accelerating cycle alongside rate cuts. So that index reached an all-time high. Recently what we’ve been, what we’ve been seeing in the indices is essentially on a day that tech does well, the cyclicals don’t. So, you’ll see the S&P and the NASDAQ rally, but the Dow and the Russell don’t.

But then the next day, on a day like today, you see the S&P and the Nasdaq, they’re cooler, they’re not performing that well, but the Dow and the Russell are really running, the Dows up 50 basis points, 0.5% or 250 points, and the Russell is up over 1%, like I said earlier, reached an all-time high. Those companies when you have a faster economy and a rate cuts, they tend to do better than tech, as well as of course, the more defensive areas like utilities, staples, and healthcare.

Mary MacNamara  

That’s good. So, something’s happening tomorrow, right? With other numbers coming out with jobs and so forth…

Jose Torres  

Yeah, we have housing starts, building permits, we have consumer sentiments. The housing data is important for economists like me, but not really that impactful to capital markets. So, Wall Street in the short run. Really, Wall Street’s going to be more focused on non-farm payrolls, of course, jobs Friday.

We’ll be here on the Interactive Brokers Channel reporting on that at 8:15 ET  in the morning tomorrow morning. But another huge thing is the Supreme Court decision expected tomorrow on President Trump’s tariffs, and whether he had the presidential authority to enact those broad-based levies. Our participants here based on our predictive platform, project that the Supreme Court is actually going to block the tariffs with a high degree of conviction. In fact, just a 23% chance that the Supreme Court will allow the tariffs to continue. Of course, the administration has additional measures that it can pursue if the Supreme Court blocks it, but on balance, the blockage would send interest rates higher because it would worsen the fiscal picture. Of course, from the beginning of fiscal year 2025 to today, the US has collected north of $300 billion in tariff revenue. So that’s been helping to offset the fiscal budgetary imbalances that we’ve been running for two decades and change since the end of the Clinton administration, 2000, 2001.

As far as what it’ll do to corporate earnings expectations, it’ll actually provide if the Supreme Court blocks. The tariffs, it’ll provide a short-term boost to corporate earnings. Some companies, they face margin compression due to the tariffs, particularly those that have been exposed to the nations with some of the more elevated levies.

And then of course, if they maintain the tariffs, that’ll be good for the onshoring ambitions. That’ll be good for interest rates, good for the fiscal picture. And corporate earnings expectations. I really wouldn’t worry much about the tariffs on that front, because of the profitability story and the outlook is buoyant already.

So, we don’t necessarily need the Supreme Court to go one way or the other to bolster profitability or to really affect inflation in any significant way, because the most significant, the most meaningful. Adverse effects from the tariffs are already behind us. Inflation is already receding to the mid twos, soon it’ll be the low twos. So really, hoping that the Supreme Court, I know I’m in the minority, but I’m hoping that the Supreme Court allows the tariffs to continue. But we’ll see what happens and we’ll see what the administration response is because as we know, President Trump does try to get his way.

So, he’ll try to, maneuver or do something alongside his cabinet members to try to maintain his restrictive and really protectionist trade policy.

Mary MacNamara  

Incredible. And so, I’m so glad to speak to you as always, Jose. It’s been a pleasure. So, thank you so much, Happy New Year and looking forward to more updates in the coming weeks.

Jose Torres  

Happy New Year Mary. Great to be here. Thanks, ladies and gentlemen, for joining us here on Cents of Security for what’s going to be a terrific 2026, and I look forward to speaking with you all next time.

Mary MacNamara  

Thank you.