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Weekly Update 06/26/2026: Inflation Runs Hot; US Business Activity Remains Strong as Oil Price Drops

Insights

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Domestic Economic News

US business activity expanded at the fastest pace in five months, bolstered by a surge in demand for manufactured goods. The S&P Global flash composite purchasing managers index rose to 52.2 in June, according to data released Tuesday. Figures above 50 indicate expansion. The group’s manufacturing gauge rose to 55.7, the highest since May 2022, as factories ramped up production to meet the strongest new orders growth in more than four years. Activity at service providers also improved, boosted in part by the World Cup. Even so, high prices and low consumer confidence continued to weigh on demand. “Brighter news out of the Middle East has helped restore some confidence among US businesses in June,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement. The service sector, however, “continues to grow at an especially subdued pace,” he said. “While there is better news from the manufacturing sector, we remain concerned as factory growth continues to be temporarily buoyed by inventory building amid supply fears.” Overall input prices continued to rise but at a slightly slower pace, and supplier delivery times lengthened. With supply chain delays growing more widespread — and additional price hikes likely coming down the pipeline — manufacturers built their stockpiles of materials. Input buying by factories surged in June, with inventories of inputs swelling to the second fastest rate on record. With materials prices still high, firms sought other ways to cut costs. Headcount shrank at both factories and service providers in June. The group’s manufacturing employment index slumped to the lowest level since May 2020. Service providers, meantime, raised prices at a faster rate. Both manufacturers and service providers were more optimistic about the future, likely reflecting hopes of an easing in war-driven cost pressures in the months ahead. Survey data were collected June 11-22. During that period, the US and Iran signed a memorandum of understanding, helping to pave the way toward a permanent peace deal.

Brent oil fell below $75 for the first time since the Iran war began, as more tankers openly cross the Strait of Hormuz, while the US and Iran signal progress toward ending the war. Vessels are transiting the waterway with their satellite signals switched on, indicating growing confidence among shipowners. The International Maritime Organization also said it had received safety guarantees allowing hundreds of ships to exit the Persian Gulf. Washington and Tehran have both flagged early progress in talks to end the war that began in late February, although negotiations are likely to be protracted and claims from the two sides have diverged. In a sign of how much oil has been leaving Hormuz in recent weeks, the International Energy Agency estimates that the United Arab Emirates is exporting oil at nearly 85% of pre-war levels. The result has been a collapse in prices for real-world barrels. The nearest Brent futures timespread — a key gauge of market supply — has flashed weakness in recent days, while premiums for barrels from the North Sea to West Africa are tumbling. Oil prices are down about 40% from their high during the peak of the conflict, with the steady increase in traffic adding to workarounds that were put in place to mitigate disruption through Hormuz at the height of the war. Barrels have begun flowing through the waterway and the UAE alone has sold around 60 million barrels from inside the Persian Gulf in recent weeks. The Republican-led Senate voted Tuesday to end the US war with Iran in a rare symbolic rebuke of President Donald Trump. While the resolution is unlikely to force any changes in the administration’s strategy, it represents the latest sign that the president lacks domestic support for the effort.

Sales of new homes in the US fell again in May to the lowest level since the start of the year as heavy discounts failed to offset high mortgage rates. Purchases of new single-family homes decreased by 7.3% to an annual rate of 580,000 last month, according to government figures published Wednesday. That trailed all economists estimates in a Bloomberg survey. The median sales price edged higher to $424,900, little changed from a year earlier. Prices have generally softened since 2023 as builders have focused on smaller homes and cut prices to improve affordability. May’s decline in sales marks another setback for homebuilders, which have managed to keep purchases at respectable levels by cutting prices and offering customers subsidies to reduce their mortgage payments. Mortgage rates are hovering near nine-month highs at about 6.6%, and inflation’s resurgence is proving to be another challenge for would-be homebuyers. “Builders are dropping prices and offering incentives, but many buyers aren’t biting under current conditions,” Ben Ayers, a senior economist at Nationwide, said Wednesday in a note. “This could set the stage for continued soft sales activity this summer with mortgage rates likely to remain elevated over the rest of 2026.” In May, the for-sale supply of new homes fell 1.4% from a year ago to 496,000. Even so, that represented 10.3 months of supply at the current sales rate, matching the highest level since 2009. Contractors have slowed their pace of construction in an attempt to reduce an oversupply of new homes on the market, including of so-called “spec homes” built without a signed contract.

US consumer spending accelerated in May even as prices rose at the fastest pace in more than three years, suggesting Americans are powering through the fallout from the Iran war. The personal consumption expenditures price index rose 4.1% last month from a year earlier, the most since April 2023, Bureau of Economic Analysis data out Thursday showed. Excluding food and energy, prices were up 3.4% from a year earlier. Inflation-adjusted consumer spending rose 0.3% from a month earlier after stalling in April. The numbers are likely to keep pressure on the Federal Reserve to raise interest rates this year. Despite the recent peace negotiations between the US and Iran that have sent oil prices tumbling, economists expect the costs of an array of products to continue rising as the initial energy shock works its way through supply chains. Looking ahead, the recent pullback in gasoline prices could offer consumers some reprieve, though prices at the pump are still almost $1 a gallon higher on average than before the war started. Higher-than-usual tax refunds have helped bolster consumers in recent months, while a reaccelerating labor market and rising stock prices are also supporting spending. Even so, workers across sectors have seen pay gains fail to keep up with inflation, which has many saving less or turning to credit cards to maintain consumption habits. There was good news on that front in Thursday’s figures: Personal income, a metric which is not adjusted for inflation, rose 0.7%, while wages and salaries advanced 0.4%. When adjusting for inflation, disposable income rose 0.3%, marking the first increase since the start of the year. The saving rate held at 3%, the lowest since 2022.

A separate report showed the US economy grew at an annualized 2.1% pace in the first quarter, faster than previously estimated, though that primarily reflected a downward revision to imports. Consumer spending, meanwhile, was marked down to 0.5% from 1.4%, marking the smallest quarterly advance in four years. Outside of the war’s direct impact on energy prices, categories in both goods and services saw firm price increases in the May report. A closely watched metric of services inflation that excludes energy and housing advanced 0.5%, the most since January. Financial services prices rose by the most in almost a year, while transportation services and healthcare also posted strong increases. Companies like Kroger Co. say consumers are seeking more deals as higher gas prices squeeze household budgets. Lowe’s Cos., meanwhile, says customers are putting off big-ticket purchases. “This is a healthy consumer, but the broader macro is giving them a bit of hesitation,” Lowe’s Chief Executive Officer Marvin Ellison said at a conference this month. Another report showed durable goods orders fell 4.5% in May, the most in almost a year.

Separate data out Thursday showed initial claims for unemployment benefits fell last week by 12,000 to 215,000 from the prior week's upwardly revised 227,000, offering additional signs of labor market resilience. The result came in well below the Bloomberg consensus estimate of 225,000 (range: 220,000 – 240,000 from 36 economists). The print represents a meaningful beat versus expectations and signals that layoffs remain low despite ongoing economic headwinds creating uncertainty for businesses. Continuing claims — a proxy for the total number of people receiving benefits — ticked up modestly to 1.821 million in the June 13 survey week, though the level remains historically contained.  

Interest Rate Insight and the Fed

All of the biggest US banks cleared the Federal Reserve’s annual stress test, setting the stage for lenders to boost buybacks and dividends. The exam aims to gauge how Wall Street lenders would fare under a hypothetical shock to the financial system. Unlike other years, the 2026 results will not impact capital requirements as the Fed continues revising the tests to make them more bank-friendly. As a result of that decision “there is no expectation that the firms delay until a particular time the public disclosure of their planned capital actions through the third quarter of 2027,” the Fed said in a release Wednesday. The exam this year assessed how 32 large lenders would withstand a severe global shock with heightened stress in both commercial and residential real estate markets in addition to corporate debt markets. The hypothetical scenario included a severe global recession with a 39% decline in commercial real estate prices and a 30% decline in house prices. The unemployment rate also increased to a peak of 10% and economic output declined commensurately. “Despite absorbing more than $708 billion in total loan losses under this year’s hypothetical scenario, capital declined only 1.6 percentage points in aggregate, staying above minimum capital requirements,” the regulator said. The Fed pointed to three main factors that influenced the results of the 2026 test compared to a year prior. Projected capital decreases stemmed from higher loan losses due to increased loan balances and the increased severity of certain scenario variables. Lower projected unrealized gains in bank securities due to smaller hypothetical declines in interest rates tied to the scenario also pushed projected capital lower. It also showed that projected capital increased from higher interest income due to recent bank financial performance and smaller hypothetical declines of interest rates during the scenario. “Today’s results underscore the strength of the banking system,” Michelle Bowman, the Fed’s top bank watchdog, said in a statement. In recent years, Wall Street lenders have passed the test, clearing them to return billions of dollars to investors. JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley all boosted their dividends after acing the exam in 2025.

Impactful International News

Germany’s business outlook brightened slightly in June, easing worries about the knock-on effects of the Iran war on Europe’s largest economy. An expectations index by the Ifo institute rose to 84.1 from a revised 83.9 the previous month. That’s below the 84.8 median estimate in a Bloomberg survey. A gauge measuring current conditions improved more markedly. “We’d expect the situation to improve in the coming months for the German economy,” Ifo President Clemens Fuest told Bloomberg Television on Wednesday. “Current forecasts are being revised upwards, but very slowly.” The numbers contrast with data Tuesday revealing business activity unexpectedly worsened this month as sagging confidence over the Middle East conflict sent services activity sinking at its fastest pace since 2022. After a good start to the year, the economy is struggling. The Bundesbank sees full-year expansion of 0.5%, well short of the “year of growth” Chancellor Friedrich Merz promised before the Iran conflict. Outlays on defense and infrastructure are now acting as a cushion rather than revitalizing growth. “There’s this combination of structural factors and macroeconomic shocks,” Fuest said. “The first half of the year has been lost due to the Iran war. And overall, growth is really carried by public spending.” Companies are feeling the pinch, with BMW AG recently issuing a profit warning and saying the war is hurting consumer sentiment across the world.  

Company Events

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