Charts and Smarts^®

Hey Hey, My My: The recent shutdown is continuing to have ripple effects on data availability as government agencies work through the backlog and deal with missing survey data entirely. While we may not have access to the gold standard data, particularly with respect to labor markets, the rest of the mosaic continues to paint a clear picture of linear cooling. The trend is not your friend, and risks remain very much skewed to the downside for labor markets.

Tell Me Why: While labor market risks continue to be skewed to the downside, the inflation outlook, in fact, appears to be improving despite all the claims of sticky inflation. There may be scope for some incremental tariff pass-through in coming months, but with labor markets cooling, wage growth softening, and shelter costs disinflating, it’s hard to see where a persistent inflationary impulse comes from. Tension in the Fed’s dual mandate appears to be fading.

Down by the River: As we look out into 2026, consensus is steadily growing around a potential reflationary impulse fueled by a bumper tax refund year as provisions of the One Big, Beautiful Bill take effect. Refunds are indeed set to surge, but it’s less clear that will translate to a meaningful boost to consumption as tepid consumer confidence is likely to divert some of those refunds toward savings or paying down debt. Tax cuts certainly won’t hurt, but the growth impulse may very well prove smaller than expected.

Expecting to Fly: Corporate tax policy changes are the other source of optimism with respect to the 2026 growth outlook. Optimism around a renewed CapEx cycle is growing thanks to the restoration of 100% bonus depreciation and full expensing of R&D expenditures. But we’ve seen this play before. Tax policy is not the sole driver of capital spending decisions. The growth outlook is far more important, and to the extent growth is likely to remain at or modestly below trend, more favorable tax policy alone isn’t enough to drive a surge in CapEx.