US Activity Update: Growth Continues to Pick Up + An Overhaul of the Monitor - 5/29/2026
First edition under a refreshed monitor. Composite Activity +0.11σ since May 6 — broad pickup ex-housing. Manufacturing restocking continues, AI-boom continues to anchor the cycle, Hormuz risk tilts inflationary rather than recessionary. 2026Q4 rate hike remains the base case.
This is the first edition of a broader overhaul of the US Activity Monitor so they can be more scalable, adaptive, and support more rapid updates. There may be small discrepancies during the transition, especially in some labor measures, due to seasonal adjustment and methodological changes. Please reach out to macrosuite@employamerica.org with any feedback, requests, or concerns. A pdf of a comprehensive chartpack, the original dashboard, and appendix can be found in the Data Appendix section.
Our composite index jumped 0.11σ from our May 6 Update. Detailed discussion will be below the takeaways section.
The pickup was broad-based, with the exception of housing. Consumption is a mixed signal – nominal looks strong, but real consumption growth looks tepid
Manufacturing continues to pick up – evidence for our view that an inventory restocking cycle is a tailwind to growth.
There has been increasing chatter that we are undergoing a true resurgence in manufacturing. We are reluctant to go that far – we still believe this is an inventory restocking story but there are also real headwinds from tariffs and the Hormuz closure.
We continue to see risk of the Hormuz shock tilted towards inflation rather than recession, and recent data are showing early evidence of this view.
The US economy can handle higher oil and refined product prices better than most other countries given the persistently strong dollar and the availability of cheap natural gas. There is still a breaking point on how much of a commodity price surge the US can stomach, but we are far from that breaking point right now. The dollar is liable to strengthen in an environment of US growth outperformance.
We are reminded of how the tech boom kept going through the late 1990s even as the Asian Financial Crisis drove a global recession and a US manufacturing recession. We see some parallels to the current moment, where the Hormuz shock could be incredibly nasty for many advanced and emerging economies, global energy prices make new all-time highs, and yet the US economy and its tech boom skate through, breeding imbalances and papering over weaknesses in other cyclical sectors.
This cycle is ultimately being driven by the AI-boom, and we don’t see any hints of s-curve dynamics for AI-related fixed-investment appearing, nor do we see any signs of shareholder impatience with respect to the capex boom.
The greater near term risks for the AI-boom are shortage and inflation rather than an outright bust. We will have a note outlining AI-related bottleneck risks and the macro implications around them soon.
AI advancements continue to impress, it appears Anthropic has reached profitability much quicker than anticipated, and earnings and guidance were pretty strong across the board for firms at the forefront of the AI boom and even firms adjacent to it.
We are expecting real GDP growth to be 2% for 2026Q2.
March weakness tied to higher commodity prices was significant, but the effects on quarterly real GDP data are primed to be backloaded into Q2 relative to Q1. There may be noticeable effects on structures and equipment investment if material costs persistently spike and raise corresponding deflators.
Labor
Baseline Views:
The labor market looks like it has stabilized, we don’t see near-term downside risk.
The unemployment rate remains stable in the 4.3-4.4% range, prime-age employment rates are stable near or above pre-pandemic highs, cyclical employment has been outpacing acyclical recently, and nonfarm payrolls have been at or above breakeven estimates.
While we aren’t ready to call this a reacceleration, tier-2 data (wage growth for job switchers have been rising on indeed and in the Atlanta Fed wage growth trackers) has shown a modest pickup
Key Changes From the Previous Update:
Labor market data from the previous update support our view of a stabilizing labor market.
The upside was broad: claims declined, Empire State hiring strengthened on both the services and manufacturing sides, and aggregate payrolls for production & nonsupervisory workers picked up.
While Prime-age employment fell, full-time prime age employment increased.
These numbers can be noisy month-to-month, taking moving averages show prime-age employment rates are still strong and hovering at-or-above pre-pandemic levels.
While as-reported payroll growth softened the index, it is important to note that the breakeven rate is much lower now than in the past
Consumption
Baseline Views:
We see downside risk to real consumption growth, even as nominal looks fine. People are still spending money, they’re just not necessarily consuming more goods and services.
(1) Inflation has been running hot for six months; (2) the Hormuz shock is adding more pressure to disposable income through higher energy and food prices; (3) healthcare costs are rising and crowding out wage growth, resulting in less disposable income.
With that being said, we don’t see consumption growth falling off a cliff – employment levels are healthy, wage growth for job switchers is picking up, and a deal to reopen the Strait of Hormuz could be materialized soon. Elevated tax returns also help cushion the blow from the Hormuz shock – even if temporary and the impact overstated by consensus.
Key Changes From the Previous Update:
The only major mover from the previous update was retail & food service sales – a nominal indicator.
Services
Baseline Views:
Services signal a cyclical upturn, we anticipate nominal spending to hold up, real spending will have some downside risk from the Strait of Hormuz closures squeezing discretionary incomes.
Key Changes From the Previous Update:
Soft services saw a sharp upturn
All five regional Fed services surveys increased
Hard data was more of a mixed bag
Nominal services is high, but cyclical PCE saw a pull-back.
Manufacturing
Baseline Views:
The inventory restocking cycle is well underway and is showing up across the board — nominal, real, and soft-survey data all confirm it. Our base case remains that this is a temporary, two- to three-quarter phenomenon rather than a true manufacturing renaissance.
Firms front-ran tariffs, building up inventory ahead of them; those inventories have since been drawn down, catalyzing a restocking cycle even as conditions held up despite the Hormuz shock. We'd revisit this call if the data warrants it.
Key Changes From the Previous Update:
Data from the previous update confirm our view. The weakness in the Philly Fed new orders looks to be a pullback from an unusually strong April reading rather than underlying weakness.
Residential
Baseline Views:
The housing sector appears to be stabilizing in the near term despite elevated mortgage rates — even after 175bps of rate cuts since 2024.
Nominal home prices have stayed flat while real price declines and homebuilder incentives have helped clear some inventory.
Residential construction employment has been flat and residential specialty trade employment have been contracting, housing starts and permits look tepid, and mortgage rates remain elevated.
We see downside risk to housing re-emerging over the next twelve months.
Key Changes From the Previous Update:
Not much housing data from this update, fresh housing data will be in place by the next update.
Non-Residential
Baseline Views:
Our call from January 2025 was that the AI-boom would be the fulcrum of the business cycle, we are seeing that play out in financial markets and the real economy.
Fixed investment from the AI-boom is strong, while the rest of fixed investment data look tepid or recessionary.
Key Changes From the Previous Update:
Nonresi contractor employment drove the move in this update, we will have fresh nonresi data in the next update.
