Featured Analysis - US

There’s a growing list of “never before seen” shocks hitting the US economy— and, yet the unemployment rate sits at an extraordinarily low 4.3%, and GDP growth is running just slightly below 2%—far from a boom, but a long way from a recession.

It’s still “stagflation-lite” in many ways—an anomalous term we’ve used to describe growth running slightly below comfort, and inflation slightly above it.

But even with all this, the US is still likely to produce the strongest growth in the G7 in 2026. On the surface, it seems capable of absorbing all types of disruptions.  

However, hiding behind topline growth are three powerful crosscurrents within a larger structural shift.  

First, is a reminder 2026 started with the economy set to receive a significant tailwind from a major fiscal spend—the One Big Beautiful Bill Act. It cut taxes and produced consumer windfalls that we, and many others, expected to support the consumer and growth during the year.

Unfortunately, that windfall is likely to be offset by the second crosscurrent: The energy shock from the conflict in the Middle East.

Our view, covered in depth, has been that higher energy prices will nudge headline inflation above 3% this year, but more importantly, they will eat up tax refunds, particularly for lower-income consumers. Bulls can argue there was an existing buffer to absorb the energy shock. Bears may argue it cancels out an important tailwind. Ultimately, both are right.  

Third, repercussions from 2025’s trade war are holding even more of our attention even though geopolitical headlines dominate 2026.

Inflationary pressure from tariffs is showing up more consistently now in pricing activity as producer prices climb, and trade-exposed core goods pressures start to follow.

In the post pandemic era, we’ve become used to the notion of corporate pricing power, and consumers “paying up” for higher prices. However, unlike 2022-2023 when stimulus checks and excess savings meant consumers could pay more, real wages are running below -1% year-over-year and the savings rate is falling. Stay tuned.

These three cyclical crosscurrents fit within a much larger structural theme in our the 2026 outlook. As GDP chugs along between 1-2% throughout the year, it comes with a curious development of virtually no job creation in the past year, inciting increasingly popular descriptors like “no hire no fire” or “jobless growth.”

The former is a bit of a misnomer given there’s been plenty of job creation in health care, but also plenty of job destruction in trade-related sectors.

The “jobless growth” descriptor might also be missing the mark on another count, particularly when it paints the economy with a negative slant. A US economy that is not reliant on job creation to accelerate is, in our view, a blessing in disguise. Instead of hiring, America is squeezing more growth out of each worker, which is just another way of saying the economy is growing on the back of productivity.

Thank goodness, because America is increasingly short workers—a theme we’ve explored in depth. If the economy needed labor to accelerate right now, it would either generate a further uptick in inflation as wages rise in competition for a thinning labor supply. Or, it faces a very hard ceiling on how fast the economy could grow.

Indeed, productivity is now the name of the game in the US (and many other major economies). It is the main driver of growth, and more critical to the US outlook than it has been for decades. We’ll likely write more on the topic in the coming months (years), but it’s worth highlighting a few quick points:

1. Productivity is hard to measure and forecast, and prone to significant revisions. Without passing the buck, expect growth forecasts to have wider margins of confidence in a productivity-led growth economy versus a job-led one. For more on the complexities of productivity calculations, see our in-depth primer.

2. We aren’t yet convinced we’re seeing AI-generated productivity growth. Instead, our current take is that businesses are extracting more out of the labor force from existing workers and tools, and there has been some composition shift in the US towards more productive sectors. The silver lining is the AI-driven productivity surge is still likely ahead of us. Read more about that view.

Growth outlook

Inflation outlook

Labor market outlook

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About the Authors:

Frances Donald is the Chief Economist at RBC and oversees a team of leading professionals, who deliver economic analyses and insights to inform RBC clients around the globe. Frances is a key expert on economic issues and is highly sought after by clients, government leaders, policy makers, and media in the US and Canada.

Mike Reid is Head of US Economics at RBC. He is responsible for generating RBC’s US economic outlook, providing commentary on macro indicators, and producing written analysis around the economic backdrop.

Carrie Freestone is a Senior US Economist  at RBC. Carrie is responsible for projecting key US indicators including GDP, employment, consumer spending and inflation for the US. She also contributes to commentary surrounding the US economic backdrop which she delivers to clients through publications, presentations, and the media. 

Imri Haggin is an US Economist at RBC, where he focuses on thematic research. His prior work has centered on consumer credit dynamics and treasury modeling, with an emphasis on leveraging data to understand behavior.

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