Catenaa, Friday, September 25, 2026- The US economy is set to settle at 2% growth in the next 12 months, with the benefits of growth accruing mostly to profit margins while income erosion remains a reality for households.
The EY-Parthenon said that the US economy is on track to advance 2.3% in 2026, a solid figure considering the range of supply-side headwinds stemming from trade policy, geopolitical stress and higher energy costs, demographic pressures and immigration constraints.
“Still, one cannot overlook that growth could have been stronger, potentially with a 3% handle, and inflation lower, closer to the Fed’s 2% target, in the absence of those shocks,” the EY-Parthenon team led by Gregory Daco said in a note.
While real GDP growth is likely to be very strong in Q3, EY-Parthenon anticipates that the US economy will settle into a 2% pace over the next 12 months.
On the labor market, it said that the economy added 162,000 jobs on net in August, well above expectations, with combined upward revisions of 55,000 jobs to June and July payrolls.
EY-Parthenon said that the unemployment rate was unchanged at 4.1%, even as the labor force participation rate rebounded to a four-month high.
Across sectors, the labor market remains stable, though August included several notable one-off gains. Overall, a steady payroll trend, low layoffs and a low unemployment rate point to a stable, if largely frozen, labor market.
“We foresee the unemployment rate trending toward 4.4% by the end of next year, Daco and the team said.
Moreover, it said that at a time when the economy is contending with tariffs, geopolitical tensions, energy price volatility and slower labor force growth, productivity has become a critical buffer against supply-side pressures.
The revised Q2 2026 productivity data left the key productivity metrics unchanged, reinforcing the view that underlying efficiency gains remain healthy. While productivity growth has cooled from its strong pace throughout 2025, labor productivity remains up 2.2% y/y and continues to outperform the pace that prevailed during the pre-pandemic expansion.
Since the start of the current business cycle in Q4 2019, labor productivity has increased at a 2.1% annualized rate, well above the 1.5% pace recorded between 2007 and 2019, and broadly in line with the long-run historical average.
EY-Parthenon said that businesses have remained intensely focused on efficiency in a high-cost environment, and the recent strength in productivity is not primarily an AI story, at least not yet.
Instead, it said that it reflects the cumulative payoff from years of workforce optimization, process automation, cost discipline, and more intensive use of capital.
“Looking ahead, we expect AI adoption to become a more meaningful driver of productivity growth, complementing the current surge in AI-related investment and supporting stronger growth over the medium term,” EY-Parthenon said.
