Economic Outlook for Q1 of 2026
As we enter the first part of the year what most business owners are working to estimate is what the economic or consumer outlook will look like for the first quarter of the year. A lot of important business operations are indeed tied to this, setting up inventory, pricing, investing capital in marketing, staff and other resources.
So how will Q1 of ’26 compare to ’25? What are some of the key data points to look at to paint a picture for the economy as a whole but also to estimate the strength of the consumer.
Let’s look at the job market, the US added 50,000 jobs in December, beating expectations. However, 2025 has seen the slowest jobs growth in the past 5 years, that 50,000 number was the average monthly growth for the year which points to a cooling, yet stable job market. With that however, the total unemployment percentage has remained between 4 - 4.5% (currently 4.4%) throughout the year. The FED during this time has decreased interest rates 4 times in an effort to cool the economy, hiring and wage increases in an attempt to combat inflation. This combination of statistics with the constant decrease of interest rates and a decrease in inflation points to the FED accomplishing its overall goal of a “soft landing” for the economy. Further evidence of this can be seen in consumer spending patterns. The holiday season the highest spending season of the year had showed the American consumer with a slightly more robust buying power compared to the previous year, consumer spending remained healthy slightly increasing through fiscal policy working to slow the economy all positive signs.
In addition, GDP has been growing at an unprecedented rate. We've gone from the first quarter's slight 0.6% contraction last year to 3.8% in the second quarter, and 4.3% in the third and this week the Atlanta Fed's tracker for fourth quarter GDP hit 5.4%.
With those facts leading up to this quarter how can we expect the economic outlook to be? The general consensus from most economists is for the quarter to be more stable with less volatility and higher valuations for corporations as compared to the previous year with a slightly more liquid consumer base, for the following general reasons:
An established DC administration. Last year with Trump retaking power, there was a lot of uncertainty on what policies campaigned on would actually be implemented, take affect and time it would take to see how they would affect the economy. Tariffs are a good example, last year the incoming President said he would implement them, yet no one knew how, when, by what degree and how they would affect COGS and other economic factors. Almost a year removed from the so called “liberation day” corporations and countries have for the most part battled through the tariff uncertainty, adjusted prices and shored up supply chains. Markets have recovered and that threat of uncertainty remains largely abated.
Interest rates: the cost of borrowing is the lowest it has been in years, however the FED has stated this last cut in December (which came with plenty of descension) will be it’s last for the next couple meetings until more concrete data on unemployment and inflation can be gathered. In a sense, interest rate risk for this quarter is far lower than at any time in 2025 which could see a variety of businesses and individuals who have been waiting to finance projects or re-finance existing debts make a move, and in either direction, will increase cashflow and pump liquidity into the markets and small businesses.
Another instance to keep in focus is the private wealth or spending power of the consumer. With a lower cost for capital, Americans can refinance or pay down debt more effectively which could lead to a boost in consumer confidence. In addition, most Americans are set to receive a higher tax rebate from 2025 on a number of initiatives, passed by the current administration such as no tax on overtime, tips and interest write off on US-made vehicle purchases. Again, an avenue for more liquidity pumped into the average household.
Speaking of pumps, (pun intended) the price at which has been the lowest since covid, cheaper energy costs are expected to remain so throughout the first quarter, while a smaller expense, it does play a part in spending confidence among middle to lower income Americans and has a broader effect on the cost for transportation in the world of supply-chains which are mostly reflected in the final price consumers pay for everyday goods.
In summary, the first quarter of 2026 is slated to be one of more stability in the markets and economy as a whole, with an increased availability of liquidity for the consumer and business alike. While the overall economy plays its part, it’s your job as a business owner to be able to pivot and make changes, implement strategy to effectively navigate the next quarter in your company’s distinct industry or industries in which it operates.
To gain personalized guidance for your business on this topic and others contact us.
- Vince Calace
Founder - Venture Business Development