Key facts
- Initial jobless claims saw a marginal increase last week, indicating labor market stability.
- Services sector input prices have risen, suggesting broad-based inflation.
- The U.S. economy grew 2.1% in Q1 2026, primarily due to business investment.
- Headline PCE inflation stood at 4.1% in May, significantly above the Federal Reserve's 2% target.
- The number of job openings is closely aligned with the number of job seekers.
- Nominal wage growth is currently running higher than pre-pandemic averages and inflation.
The U.S. labor market shows signs of stabilization, with initial jobless claims rising marginally last week amid low layoffs, indicating stable conditions. Services businesses are experiencing increased input prices, suggesting inflation is not confined to the goods sector. The economy expanded at a 2.1% annualized rate in the first quarter of 2026, largely driven by robust business investment in technology, while consumer spending saw its slowest quarterly growth since 2022. Overall economic expansion for 2026 is projected to be around 2.0%, similar to the previous year's pace, though risks to this forecast are elevated.
Headline personal consumption expenditures (PCE) inflation, the Federal Reserve's preferred measure, reached 4.1% in May, significantly above the Fed's 2% target. This rise is attributed partly to volatile energy prices. However, expected normalization in energy markets and global supply chains later this year is projected to bring inflation down, with a return to the 2% goal anticipated by 2028, though considerable uncertainty surrounds this forecast.
The labor market is considered broadly balanced, with job openings at 7.6 million, only slightly exceeding the number of people actively seeking work. Nominal wage growth has remained relatively stable since mid-2024, ranging from 3.6% to 4.2% annually. This wage growth is notably faster than pre-pandemic averages and also outpaces current inflation, indicating real wage gains for workers.