It is that time of year once again. I am not talking about the deluge of Hallmark Christmas movies or mall madness. This is the time of year for economists to pretend that the end of a calendar year means anything to the patterns of the economy. I will try to offer some observations regarding what can be expected in 2026.

Inflation

Let’s start with inflation, as this has most definitely emerged as the key issue for businesses and consumers and, therefore, for politicians. There is serious talk of reducing or eliminating tariffs on nations that supply food to the United States as consumers rebel against the high cost of groceries. The inflation rate is now at 3.0%, which is a full point higher than the Fed’s target rate of 2.0%. 

If the tariff impact is not ameliorated, the expectation is that inflation could climb to between 4.0% and 4.5%. Given that most of the inflation has been “manmade,” there is a lot of volatility. This has not been inflation caused by excess demand or by legitimate supply chain issues. A tariff climbdown would drag inflation down with it. 

Next up on the cavalcade of predictions is reaction to that inflation threat by the Federal Reserve. The Fed has reduced the Fed Funds rate by a quarter point twice this year, and may elect to do that again by year’s end. However, much depends on inflation numbers, as there are still plenty of hawks involved in the decision. A rate of 4.0% will almost certainly keep the Fed from lowering rates any further, but if inflation remains under 4.0%, it will look harder at growth data such as unemployment and GDP. The consensus view is still that another two- or three-quarter point cut will be made in 2026, but spiking inflation will spark discussion of a rate hike.

Jobs

What about jobs? The current unemployment rate is still very low, 4.3% at the U-3 level (actively seeking employment), and has barely moved all year. The U-6 rate (may or may not be actively seeking employment) has moved up a bit from 7.9% to 8.1%. This is the rate that includes the so-called “discouraged job seeker” as well as the involuntary part-time workers (also referred to as underemployed), and is generally seen as a more accurate assessment of the job situation. There have been more layoff announcements of late, but the reality is that there is still a serious labor shortage in many industries and that has inhibited companies that might otherwise think about reducing their workforce numbers. 

The expectation is that employment will remain stable in the coming year, and that is especially true for electrical contracting for two primary reasons. The first is that this sector has been affected by labor shortages for years and companies hesitate to lose key employees. 

The other factor is growth. The demand for power is growing—an additional 44 terawatts just to accommodate artificial intelligence. The big issue as far as employment goes is training. There are some 9 million people ostensibly looking for work, but they lack the skills and education needed to get the jobs on offer.

The coming year

This brings us to growth projections for 2026. A couple of caveats are appropriate at this juncture. The United States is a big nation—really big. The U.S. GDP is larger than the GDPs of China, Japan, Germany and the United Kingdom combined, and that means every state compares to a country in terms of the economy. When national numbers are quoted on GDP growth or employment, they will often differ significantly from state and local numbers. 

Growth in a given state may be far greater or far less than in others. For example, North Dakota has a growth rate of almost 6.0% and unemployment at 2.5%. The United States has been growing at a much faster pace than expected—close to 4.0% in Q3 and close to that in Q4. There are always a range of predictions regarding growth, as there are always changes in the variables. 

Most forecasts call for growth between 3.0% and 3.5% for the first two quarters of 2026, but some skeptics assert that the effects of tariffs will manifest and drag growth down as low as 1.0% to 1.5%. So that pace will likely slow in the latter half of 2026, but that also depends on trade and tariff policies.

As one would expect from an economist, there are all kinds of references to “it depends.” The tariff policies have been erratic and hard to accommodate. A period of certainty would go a long way toward stabilizing the economy, but 2026 is an election year, and stability is not common. Most sectors of the economy are still performing well, but threats are also abundant.   

Editor's note: this magazine will dive deeply into economic prognostication in our 2026 Construction Outlook, coming next month in our January 2026 issue. Look for detailed assessments by sector and more.

tock.adobe.com / InfiniteFlow