Economic Review 23 February 2026

Summary

Equities saw gains globally, with international stocks outperforming U.S. for the week. Bonds were little-changed in the U.S. and mixed abroad with a stronger U.S. dollar. Commodities saw continued gains across the board, especially in energy with intensified U.S.-Iran tensions.

Economic Notes

(0/-) The initial release of real U.S. GDP growth for the fourth quarter came in at 1.4%, well below expectations calling for 2.8%, and down from the 4.4% of the third quarter. Within the report, the positives included consumer spending (up 2.4%, contributing 1.6% to the overall growth number, almost entirely in services), private investment (3.8%, adding 0.7%) including intellectual property and equipment (data centers), and inventories (adding 0.2%). On the negative side, federal government spending declined (-5.1%, trimming 1.2%), with negative shutdown effects apparent, although that will likely turn into a corresponding growth boost for Q1.

The reading was down sharply from recent Atlanta Fed GDPNow estimates, which had been in the 3’s, with the most recent reading having fallen only to 3.0% just prior to the official release. Normally, those estimates tend to be a bit more accurate, although the prior quarter saw the government shutdown, which appeared to temporarily affect the results. The initial GDPNow Q1 estimate has come in at 3.1%, which includes assumptions of a 1.9% positive contribution from consumer spending, 0.8% from nonresidential fixed investments (such as data center building), 0.8% from inventories, and -0.5% from net exports.

(+) Personal income rose 0.3% in December, in line with expectations. Personal spending rose 0.4%, a tenth stronger than expected, led by spending in services. The personal saving rate came in down a tenth to 3.6%. PCE inflation on both a headline and core (ex-food and energy) level rose a rounded 0.4% for the month, a tenth higher than expectations. Year-over-year, headline PCE ticked up a tenth to 2.9%, while core PCE picked up by two-tenths to 3.0%. This was a full percentage point above the Federal Reserve’s 2.0% policy target.

(0) The preliminary February S&P Global U.S. manufacturing PMI fell by -1.3 points to 51.2, below the median forecast calling for an unchanged 52.4, but remained in over-50 expansionary territory. Under the hood, output, employment, and new orders all declined by several points, but remained in expansion. On the inflation side, input and output prices also fell by up to several points, but remained solidly in expansion (55-65 level). On the positive side, future output rose by over a point to 70, the highest level since June.

(0) The preliminary February S&P Global U.S. services PMI edged down by -0.4 of a point to 52.3, below the slight rise to 53.0 expected, but remaining in expansion. Underlying composition was weak for services as well, with new business and employment falling by a fraction of a point, but remaining in expansion. Prices for services ticked higher, also further into expansion in the 60 range. Future output rose by 4 points to 67, solidly expansionary and the highest level in over a year.

(-) Durable goods orders fell by -1.4% in December, slightly ahead of the -2.0% median forecast, but a partial reversal of the 5% gain in November. Removing transportation orders, and the sharp drop in lumpy commercial aircraft orders of -25% after a sharp gain the prior month, orders rose by 0.9%. Core capital goods orders rose by 0.6%, about double the forecasted rate, which was led by gains in computers/electronics and metals. Core capital goods shipments rose by 0.9% for the month. Year-over-year total durable goods orders rose by 10%, with the ex-transportation segment up 5%.

(+) Industrial production rose 0.7% in January, exceeding the 0.4% gain expected. Manufacturing production rose 0.6%, due to rises of about a percent each in auto assemblies and business equipment, including the strong high-tech equipment group rising another 2% as a sub-component. Mining production, which included petroleum extraction, fell by -0.2%. Utilities rose 2.1%, which was no doubt due to the frigid weather across the U.S., but a component of consumption in U.S. GDP, so it does make a significant contribution. Year-over-year, total industrial production rose 2.2%, with the strongest gains being in motor vehicles/parts (6%) and high-tech equipment (9%), with the latter tracking the continued strong capex spending in AI, with consumer goods and utilities gaining just over a percent for the year. Capacity utilization rose by 0.5% to 76.2%, but still below forecast by a few tenths.

(+) New home sales fell by -1.7% for December but rose by an average of 6.9% in November/December to a seasonally-adjusted annualized level of 745k units, above the 730k expected, albeit with a downward revision of -81k in October. For the two months, gains were strongest in the West (25%) and Midwest (15%). For the 2025 calendar year, new home sales rose by 3.8%. The median new home sales price rose by 4.2% in December to $414,400, which was down -2.0% for the calendar year. Inventory came in at 7.6 months’ supply in December, down a percent from Nov., and down about -7% for the trailing year.

(+) Housing starts rose 6.2% in December and 5.1% on average for both November and December to a seasonally-adjusted annualized level of 1.404 mil., well above the 1.304 mil. expected. Multi-family rose 6% on average, while single-family were up 5% for the two-month stretch. Regionally, the West and South saw the strongest gains, while starts in the Midwest declined. Nationally, starts remain down -7% over the past 12 months, with single-family down -9% and multi-family down -3%. Building permits rose an average of 1.3% for those two months, to a seasonally-adjusted annualized level of 1.448 mil., above the 1.400 mil. expected. Multi-family permits rose by an average of 4%, while single-family were little-changed. The Northeast led all regions with double-digit permit gains, while the South saw a small decline. Permits fell -2% over the past year, which masked the disparate results of single-family home permits down -11% while multi-family were up over 15%.

(-) On a similar note, the NAHB housing market index fell by another point to 36 in February, below the 38 expected, and well below the 50 level that indicates neutral sentiment. The underlying components included current sales steady at 41, sales expectations for the next six months down -3 points to 46, and prospective buyer traffic down -2 points to 22. The overall weakness has been the case for much of the past two years; however, homebuilder price cutting has decelerated a bit to the lowest levels since last May. As seen in other housing market data, a variety of factors remain as headwinds, including larger new home inventory, high home prices generally, restrictive local zoning, building costs impacted by tariffs, as well as immigration enforcement that has affected worker availability.

(0) The final Univ. of Michigan consumer sentiment index for February ended up 0.2 points from the prior month at 56.6, with identical measures for both assessments of current conditions and expectations for the future, implying little change in opinion about the overall economy, with the exception of an improvement in sentiment from respondents who owned stocks, had higher income, and were more educated. Over the past year, both sub-categories were down by -12% to -14%. Inflation expectations for the next year fell by -0.6% to 3.4%, the lowest reading in a year, while those for the next 5 years were steady at 3.3%. Both of those metrics show some improvement and likely lesser concern over tariff impacts.

(0) Initial jobless claims for the Feb. 14 ending week fell by -23k to 206k, well below the median forecast of 225k. Continuing claims for the Feb. 7 week rose by 17k to 1.869 mil., above the 1.860 mil. expected. Initial claims dropped sharply in NY, PA, and NJ, among other states, implying a bounceback from frigid weather conditions.

(0) The FOMC minutes from the January meeting didn’t offer any surprises, but noted that “several” participants were in favor of cutting rates further if inflation declined as expected. Although, at the same time, “some” participants also thought leaving rates unchanged “for some time” as it was perceived that the labor market had shown “some signs of stabilization” and downside risks had “diminished.” Interestingly, it was mentioned that “several” participants would have supported a “two-sided description” of future policy decisions, if inflation remains at “above-target levels.” This comment referred to a path that could include rate hikes becoming appropriate again at some point “if inflation remains at above-target levels.” This seems contrary to the concerns about labor markets and likely rate cuts to come from weakness there, but also a core feeling that inflation needs to be controlled in the absence of other mitigating factors in the data.