{"id":242917,"date":"2026-05-18T09:45:00","date_gmt":"2026-05-18T13:45:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=242917"},"modified":"2026-05-18T10:37:55","modified_gmt":"2026-05-18T14:37:55","slug":"economic-update-week-of-may-18-2026","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/economic-update-week-of-may-18-2026\/","title":{"rendered":"Economic Update: Week of May 18, 2026"},"content":{"rendered":"\n

Growth<\/h2>\n\n\n\n

The U.S. economy grew 2.0% SAAR in 1Q26 as a slowdown in consumer spending was offset by stronger business fixed investment. Consumer spending rose 1.6% while business fixed investment rose 10.4% as spending on equipment and IP products surged due to the AI buildout. Increased business spending also caused imports to spike, and net exports removed 1.3ppts from growth. Government spending rose 4.4% off a low base due to the government shutdown. Real final sales to private domestic purchasers rose 2.5% after a 1.8% gain in 4Q25, suggesting that underlying economic momentum held strong despite challenges materializing late in the quarter.<\/p>\n\n\n\n

Jobs<\/h2>\n\n\n\n

The April Jobs Report beat expectations at the headline level, but the underlying details were a bit soft. The U.S. economy added 115k jobs, nearly double consensus expectations. The 3-month moving average of payroll gains moved lower but the 6-month average reached its highest level since mid-2025, pointing to some stabilization. Across sectors, health care continued to lead, but other service sectors, such as retail trade and transportation and warehousing, also saw solid growth. On the other hand, the unemployment rate held at 4.3% rounded but rose 8bps as the number of unemployed persons increased despite a decline in the labor force. Wage growth came in weaker than expected, rising 0.2% m\/m and 3.6% y\/y. Overall, softer details on unemployment and wages lead us to believe that the labor market is stabilizing, not retightening.<\/p>\n\n\n\n

Profits<\/h2>\n\n\n\n

The 1Q26 earnings season is underway. With 83.4% of market cap reporting, consensus is currently projecting EPS growth of 26.1% y\/y, up from the quarter-end estimate of 12.1%. From a sector perspective, technology is the largest contributor, on track to drive 45% of this quarter’s y\/y EPS growth. However, the health care sector is a meaningful drag as companies continue to contend with cost inflation. Despite the conflict in Iran, estimates for the full year have moved higher, driven by AI and the boost to energy earnings from higher oil prices.<\/p>\n\n\n\n

NEW THIS WEEK<\/p>\n\n\n\n

Inflation<\/h2>\n\n\n\n

The April CPI report came in hot with headline inflation up 0.6% m\/m and 3.8% y\/y as the conflict in the Middle East continued to put upward pressure on prices. Energy prices surged 18% y\/y as gas prices climbed further. Despite supply chain tensions and tariffs, core goods prices stayed flat as weakness in auto continued. Shelter inflation ticked up 0.6% m\/m, but this was largely due to a statistical adjustment stemming from the government shutdown last fall. Higher kerosene prices pushed up airfares, boosting core services ex-shelter inflation 0.5% m\/m. While the lack of demand-side pressures and wage growth should keep a lid on overall inflation, the longer the conflict persists, the more inflationary pressure will build through higher energy and input costs. Inflation should accelerate through mid-2026 before falling back to 2% during 2H26.<\/p>\n\n\n\n

Rates<\/h2>\n\n\n\n

At the April FOMC meeting, the FOMC voted to hold the federal funds rate steady at a range of 3.5% to 3.75%. Governor Miran dissented in favor of a rate cut while three other members voted in favor of removing the easing bias from the statement language to acknowledge mounting upside risks to inflation. During the press conference, Powell announced that he will remain on the Board of Governors until he is confident that Fed independence is not at risk. Moving forward, the Fed is likely to remain on hold given a stable unemployment rate and inflation moving away from target. However, the type and frequency of communication from the Fed could immediately change under Kevin Warsh as Chair.<\/p>\n\n\n\n

Risks<\/h2>\n\n\n\n