Monthly Economic Outlook
Economic forecast: August 2026 trends and analysis
Macroeconomic insights and outlook from the U.S. Bank Economic Research Group to help guide your business strategy
August 2026
Economic outlook at a glance
Resilience has consequences
Our August 2026 U.S. economic outlook points to an economy that continues to expand at a solid pace despite a range of structural and policy-related headwinds. While second-quarter GDP growth slowed to a 1.5% annualized pace, the underlying details painted a considerably stronger picture of activity. Consumer spending accelerated, business investment remained solid and a key measure of private sector demand posted its strongest increase in more than a year. At the same time, businesses and supply chains have continued to adapt to higher trade barriers, helping limit the economic drag from tariffs. The labor market also remains broadly balanced despite a slower pace of hiring, as historically low layoffs continue to support stability.
Looking ahead, we expect the economy to remain on firm footing, with growth continuing near its long-run potential pace. While that resilience remains supportive of the outlook, it is also one reason inflation is proving slow to return to target. With consumer spending, business investment and labor market conditions continuing to support demand, policymakers are likely to remain focused on price stability. As a result, our baseline forecast now includes a 25-basis point rate hike in September, though we view it as an incremental adjustment rather than the start of a broader tightening cycle.
Key takeaways:
Growth: We expect real GDP growth of 2.0% Q4-over-Q4 (Q4/Q4) in 2026 – a 2.1% annual average – and 2.1% Q4/Q4 in 2027 (2.1% annual average). While slowing labor-force growth and higher trade barriers present headwinds, resilient consumer demand, solid business investment and improving productivity should keep economic growth near its long-run potential pace.
Labor market: We expect the unemployment rate to average 4.3% in both 2026 and 2027, reflecting a broadly balanced labor market despite slower hiring. Slower labor-force growth, strong prime-age participation and historically low layoffs should help maintain overall stability.
Inflation: Inflation has shown renewed signs of improvement, but progress toward the Federal Reserve's 2% objective remains gradual and uneven. We expect core Personal Consumption Expenditures (PCE) inflation to average 3.3% year-over-year (YoY) in the second half of 2026 before moderating to 2.2% by the end of 2027 – as easing goods and housing inflation are only partially offset by persistent services inflation.
Federal Reserve: Continued economic resilience and only gradual progress on inflation have shifted policymakers’ focus more squarely toward price stability. As a result, our baseline forecast includes a 25-basis point rate hike in September, though we do not expect the move to mark the start of a broader tightening cycle.
Risks
We maintain a 25% probability of recession over the next 12 months. While the economy has proven resilient to higher interest rates, elevated trade barriers and slower labor-force growth, it also slows the return of inflation to target. As a result, higher energy prices, additional monetary policy tightening, and a retrenchment in AI-related investment remain key risks to the outlook.
Macroeconomics forecast at a glance
Produced by the U.S. Bank Economic Research Group, our in-depth economic forecast examines the trends and economic indicators shaping business decisions this year and into the future.
August 2026 Report
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Sources: U.S. Bank Economics, Bloomberg, Yale Budget Lab, U.S. Bank Economics calculation
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U.S. Bank Economic Research Group
Beth Ann Bovino
Chief Economist
Ana Luisa Araujo
Senior Economist
Matt Schoeppner
Senior Economist
Adam Check
Economist
Andrea Sorensen
Economist
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