This week’s “Three on Thursday” takes a closer look at gasoline prices in the United States. The U.S. consumes more than 130 billion gallons of gasoline annually, more than any other nation, making fuel prices an important issue for consumers and the broader economy. To find out more, click the link below.

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In 1852, Karl Marx said "Men make their own history, but they do not make it as they please; they do not make it under circumstances chosen by themselves, but under circumstances directly encountered and transmitted from the past."

He obviously knew about the Magna Carta (1215) and the English Parliament’s Bill of Rights (1689), which created a separation of powers between the King and elected representatives. What he didn’t pay much attention to was how the United States broke with history and improved upon these documents with the Declaration of Independence and Constitution so well thought out that it has only been amended twenty-seven times in 235 years.  Men and women can make their own history here.  Karl Marx was wrong.  No one puts it better than Ronald Reagan; the excerpt below comes directly from his Commencement Address at the University of Notre Dame back on May 17, 1981.

"This Nation was born when a band of men, the Founding Fathers, a group so unique we've never seen their like since, rose to such selfless heights. Lawyers, tradesmen, merchants, farmers – fifty-six men achieved security and standing in life but valued freedom more. They pledged their lives, their fortunes, and their sacred honor. Sixteen of them gave their lives. Most gave their fortunes. All preserved their sacred honor.”

“They gave us more than a nation. They brought to all mankind for the first time the concept that man was born free, that each of us has inalienable rights, ours by the grace of God, and that government was created by us for our convenience, having only the powers that we choose to give it. This is the heritage that you're about to claim as you come out to join the society made up of those who have preceded you by a few years, or some of us by a great many.”

“This experiment in man's relation to man is a few years into its third century. Saying that may make it sound quite old. But let's look at it from another viewpoint or perspective. A few years ago, someone figured out that if you could condense the entire history of life on Earth into a motion picture that would run for 24 hours a day, 365 days – maybe on leap years we could have an intermission – this idea that is the United States wouldn't appear on the screen until 3.5 seconds before midnight on December 31st. And in those 3.5 seconds not only would a new concept of society come into being, a golden hope for all mankind, but more than half the activity, economic activity in world history, would take place on this continent. Free to express their genius, individual Americans, men and women, in 3.5 seconds, would perform such miracles of invention, construction, and production as the world had never seen.”

America has proven that men and women not only can make their own history, but they can make it as they please, with circumstances chosen by themselves. Happy 4th of July to you all.  Let’s take time this week to step back and realize just how fortunate we are to live in a time and place where the fire of invention still burns hot, course corrections (however messy they may be) still take place, and the future remains bright.  May we continue to honor the legacy of those who came before us by striving to uphold the principles that have made this country a beacon of hope and freedom for the world.

(Released early in honor of the United States Semiquincentennial. We first published a version of this same Monday Morning Outlook in celebration of July 4th, 2023.)

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Implications: Following a string of better-than-expected reports, the US labor market disappointed in June. Nonfarm payrolls rose 57,000, however when including downward revisions for prior months, fell 17,000.  That said, the US employment picture has clearly strengthened during the first half of 2026, adding on average 92,000 jobs a month versus an average of just 10,000 per month in 2025. This is good news because last year’s jobs slowdown, as well as fears around AI replacing employment, are likely behind the recent string of victories for Socialists in Democratic primaries which ironically will only undermine future job growth further if they are elected. Speaking of AI, it seems clear that the worst-case scenarios aren’t unfolding. Jobloss.ai which tracks layoff announcements and aggregates them says there have been roughly 127,000 jobs lost to AI since the beginning of 2025. While that is a large number, keep in mind the US currently has roughly 162 million employed people. Turning to the details of today’s report, job gains in June were led by health care & social assistance, and professional & business services.  We like to follow payrolls excluding government and health care & education (which are often driven by government policies), which fell 20,000 in June.  Though Federal government payrolls did increase 2,000 June, they are down 323,000 since the Trump Administration took office.  Leaving out the end of the Census every decade, the decline in Federal payrolls in the past seventeen months has been the steepest since the wind-down from World War II. Over time, we think a smaller federal government will help boost growth in the private sector.  We also saw the unemployment rate tick down to 4.2% in June. However, that was due to a large decline in the labor force that outpaced the 507,000 decline in civilian employment, an alternative measure of jobs that includes small-business start-ups. Notably this measure has been much weaker than nonfarm payrolls so far in 2026 after significantly outperforming in 2025. Finally, average hourly earnings rose 0.3% in June, which given the recent (though we believe temporary) increase in inflation likely struggled to keep pace with higher prices for the month.  Put it all together and we expect continued jobs gains in the months ahead.  In other recent news, initial jobless claims fell 1,000 last week to a still-low 215,000; continuing claims increased 2,000 to 1.814 million.

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Implications: Activity in the manufacturing sector continued expanding in June, but at a slightly slower pace than the previous month. This is now the sixth consecutive month of expansion for the ISM Manufacturing index, an encouraging development for an industry that has faced significant challenges over the past three years.  While we remain cautious of the broader economy, it appears that the reshoring of production, AI buildout, and favorable business tax incentives such as bonus depreciation for domestic capex under the “Big Beautiful Bill” are providing meaningful support to the industry.  Looking at the major measures of activity, new orders and production both fell in June but sit firmly above 50 at 56.0 and 52.2, respectively, signaling expansion.  It is important to remember that until this year, new orders had been very weak going back to 2023, leaving manufacturers focused on order backlogs to keep production going.  So it’s great to see backlogs have grown each month here in 2026 after more than three straight years in contraction.  But despite the notable improvement in demand, manufacturers have remained reluctant to add new workers, with the employment index remaining in contraction territory for the 33rd consecutive month. However, of the eighteen major manufacturing categories, more reported employment growth in June (nine) than contraction (three), a sign the industry’s employment picture may be turning a corner. The best news in today’s report was that the prices index fell from 82.1 to a still-elevated 73.0 in June, after the U.S.-Iran peace agreement discussions sent energy prices lower with further declines likely.  Notably, a survey comment from the Petroleum & Coal Products category wrote, “With the potential ending of the Iran war, management is expecting us to go back to February pricing structures and plans since the increase in oil prices was driven by the war and not regular market influences.”  In other news this morning, construction spending climbed 0.1% in May, as a large increase in homebuilding more than offset a decline for manufacturing construction. On the employment front, ADP’s measure of private payrolls increased 98,000 in June versus a consensus expected 120,000.  We’re estimating tomorrow’s official report (out a day early due to Friday’s market closure for Independence Day) will show a nonfarm payroll gain of 70,000 with the unemployment rate remaining steady at 4.3%.  Finally, on the housing front, the FHFA index and the national Case-Shiller index both declined 0.1% in April but remain up 2.0% and 0.8%, respectively, in the past year.

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Alan Greenspan passed away last week at the ripe old age of 100.  Other than presidents, few Americans have wielded as much power in the arena of economic policy as Greenspan did during his roughly eighteen years and five months at the helm of the Federal Reserve.

Greenspan was originally appointed by President Reagan, but later re-appointed by Bush I, Clinton, and Bush II.  His greatest accomplishment was consolidating and advancing the gains made against inflation under his predecessor Paul Volker.  Volker deserves the credit for whipping inflation in the early 1980s.  But the PCE Deflator rose at a 3.1% annual rate in his last four years at the Fed.  During Greenspan’s entire tenure inflation averaged 2.5%.  

Another accomplishment was that after Bill Clinton was elected president, with the support of many voters who wanted to boost spending, Greenspan convinced him to keep the budget caps put in place under Bush the Elder in 1990 and focus on deficit reduction, instead.  In the meantime, Greenspan was a consistent advocate for cutting tax rates on investment and eliminating taxes on capital gains.  He also advocated against the minimum wage.

Perhaps his greatest legacy was getting the Fed to pursue a 2% inflation goal.  By law, the Fed is supposed to pursue both stable prices and maximum employment.  Many policymakers would like the Fed to emphasize the employment part, even if inflation moves back up.  Greenspan made it clear that if the goal is to maximize long-term job creation (as opposed to giving it a temporary boost), that the best way for the Fed to do that was by focusing on stable prices.  

In other words, the only way to achieve both goals was to focus on just one of them.  Otherwise, the extra jobs that might be created temporarily would be more than offset by job losses in the inevitable recession that followed, when monetary policy would have to get tighter.   He also had the patience to explain this important point calmly and patiently to dovish Senators and Representatives time and time again.   

But this doesn’t mean Greenspan was always a hawk.  During the 1990s, before there was clear evidence of an internet-related acceleration in productivity growth, he was able to convince other policymakers to hold off on aggressive rate hikes in spite of rapid economic growth and job creation.

Those other policymakers were using something called the “Phillips Curve,” a Keynesian framework that assumed faster growth meant the Fed had been too easy and inflation was going to rise.  Greenspan argued that if productivity growth was faster (faster growth in output per hour worked), then growth could accelerate but inflation would remain tame.  He prevailed and was right.       

But that doesn’t mean Greenspan was flawless.  In 1999-2000s, Greenspan ended up raising rates too aggressively, trying to offset a “wealth effect” related to stock market gains, very soon before an equity peak that threw the wealth effect in reverse.  He then held rates too low in 2003-2004, stoking a housing bubble.  And when the bursting of that bubble generated a financial panic Greenspan focused on lax regulation as the culprit.  Instead, he should have blamed overly loose monetary policy, mark-to-market accounting, “too big to fail,” and GSEs like Fannie Mae and Freddie Mac, which became much too big during his tenure and with nary a peep of warning from the Fed.

Regardless, Alan Greenspan’s time at the Fed was largely a success.  If Kevin Warsh’s goal is to do better as chairman, the country would be blessed if he succeeds.

Brian S. Wesbury – Chief Economist
Robert Stein, CFA – Deputy Chief Economist

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Implications:  New orders for durable goods declined 4.5% in May, but the details are much better than the headline suggests. The decline in new orders was entirely due to the volatile commercial aircraft category, which was also the reason overall orders rose 8.5% in April.  Wild swings like this are why orders excluding transportation provide a much better check on the broader economy. Orders excluding transportation continue to rise, up 1.3% in May, and 10.2% in the past year, the largest annual gain in four years. All major categories outside transportation rose in May, led by primary metals (+3.0%), industrial machinery (+1.9%), and fabricated metal products (+1.5%). Orders for most of the major categories have picked up steam recently: primary metals, fabricated metal products, machinery, and computers & electronic products have each experienced double-digit growth in the past year. Particularly, orders for computers & electronic products are up at a 22.5% annualized rate in the past six months, close to the largest gain for any six-month period in twenty years.  As a result, factories are having a hard time keeping up, with unfilled orders up 8.5% in the past year.  Arguably the most important number in today’s release is core shipments – a key input for business investment in the calculation of GDP – which rose 0.3% in May.  If unchanged in June, core shipments would rise at an 8.2% annualized rate in Q2 versus the Q1 average.  Business investment has shown strength recently as core shipments have consistently risen since mid-2025, driven by a more favorable tax environment and artificial intelligence spending.  In other recent news, the Kansas City Fed Manufacturing Index, a measure of factory sentiment in that region, rose to 11 in June from 8 in May.

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Nuclear energy is a crucial component of the global energy landscape. Unlike fossil fuels, nuclear power plants produce a substantial amount of electricity without emitting greenhouse gases, making them a key player in reducing carbon footprints and achieving net-zero emission goals. In this week’s “Three on Thursday,” we take a deeper look at what the nuclear picture looks like around the world. For a detailed analysis, click the link below.

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Implications: The final reading for Real GDP growth in the first quarter was revised upward to a 2.1% rate from a prior estimate of 1.6%, but the underlying details show a weaker mix.  The stronger headline reflected a large upward revision to net exports, along with smaller upward adjustments to inventories and business investment, which were enough to offset a substantial downward revision to personal consumption for services.  For a better gauge of sustainable growth, we look at “core” GDP – consumer spending, business fixed investment, and home building – while excluding the more volatile categories like government, inventories, and trade.  Core GDP grew at a 1.7% annual rate in Q1, below the prior estimate of 2.4%, marking the lowest growth rate for the category since 2022.  Residential construction has been weighing on the core grouping for some time, but the more important development in this report was a large downward revision to personal consumption, with the category now estimated to have grown at a 0.5% annual rate versus a prior estimate of 1.4%. That is the slowest growth rate for the category in four years and the first sign in the GDP data that consumers may be struggling to sustain spending.  Meanwhile, business investment – fueled by the ongoing data center and equipment buildout for artificial intelligence – showed no signs of slowing, with the category revised up to a 10.6% annual rate, the largest contribution of any category to Q1 real GDP and a substantial acceleration from the 2.4% pace last quarter. Excluding the components most directly tied to AI investment – equipment and intellectual property – Real GDP grew at just a 0.3% annual rate in Q1. We also got a second look at Q1 corporate profits, which now show a 1.7% gain from Q4 (up from the prior estimate of +0.9%) and a solid 12.8% increase from a year ago. Meanwhile, Real Gross Domestic Income, an alternative to Real GDP that is just as accurate over time, rose at a 1.2% rate in Q1 and is up 2.2% from a year ago.  GDP Prices rose at a 3.6% annual rate in Q1 and are up 3.3% from a year ago.  Nominal GDP – real GDP growth plus inflation – was up at an 5.8% annual rate in Q1 and up 6.1% from a year ago, both figures well higher than the current 3.625% target on short-term rates.  We expect price pressures to ease in the second half of the year as the recent decline in energy prices following the U.S.-Iran peace agreement begin to filter through the inflation data.

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Implications: Both income and consumption jumped in May, more than keeping pace with inflation, which continues to run hot.  Farm proprietors’ income once again played a key role, as the Department of Agriculture issued a second round of payments related to the Supplemental Disaster Relief Program (part of the 2025 American Relief Act, this program makes payments to producers who had losses due to natural disasters in 2023-2024).  Private sector wages and salaries rose 0.4% (up 4.1% in the past year) and government transfer payments were up 0.6% in May (+4.6% from a year ago).  While the 4.1% increase in private sector wages over the past year sounds decent on paper, it just kept pace with inflation, which means purchasing power is unchanged.  On the spending side, personal consumption rose 0.7% in May, led by financial services and insurance, health care, and housing & utilities.  Collectively, goods spending (which includes energy costs) jumped 0.9% in May, while spending on services increased 0.6%.  The personal saving rate — which tracks how much of after-tax income is not consumed — remained at 3.0% in May, tied with last month for the lowest reading since the summer of 2022 (and last seen before that in 2008!).  This low level of saving allows for more spending today, but isn’t sustainable long-term.  Meanwhile, the inflation picture has worsened temporarily due to the conflict with Iran. PCE prices – the Fed’s preferred inflation metric – rose 0.4% in May, while the year-ago reading increased to 4.1%, the highest since early 2023.  “Core” prices, which strip out the volatile food and energy categories, rose 0.3% in May, with the year-ago comparison rising to 3.4%, a notable uptick from the 2.8% pace for the twelve-months ending in May 2025.  The Fed will be watching this data closely under their new Fed Chair, while trying to determine how monetary policy – which operates with a lag – should respond now that the conflict in the Middle East looks to be coming to a close and energy prices have fallen significantly in June.  We expect the Fed will remain on pause for the foreseeable future as they wait for the fog to clear and a better picture of sustained inflation pressures to come into view.  In other news this morning, initial jobless claims fell 12,000 last week to 215,000, while continuing claims increased 21,000 to 1.821 million, suggesting jobs growth continues at a modest pace.

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Implications: New homes sales were much weaker than expected in May, coming in below even the most pessimistic forecast of any economics group surveyed by Bloomberg. Sales fell 7.3% in May and now sit at a 580,000 annual rate, nearly matching the slowest pace of activity since 2022. May’s sales pace is also on the weaker end of pre-pandemic levels, which has been a ceiling of sorts for activity the past couple of years.  Unfortunately, the ongoing conflict with Iran and its impact on energy prices and inflation have introduced new challenges. First, financing costs have risen in response, with the average 30-yr fixed mortgage rate up roughly 45 basis points since the start of the conflict.  Second, despite a new Chairman at the Federal Reserve, further rate cuts are on hold for the time being. But while buyers are unlikely to get much help from interest rates, the good news is that prices have been trending lower for new builds in the past several years. Median sales prices are down 8% from the peak in October 2022.  Meanwhile, the Census Bureau reports that from Q3 2022 to Q1 2026 (the most recent data available) the median square footage for new single-family homes built rose 3.7%. So, buyers are seeing a drop in the price per square foot, not just smaller/lower cost options.  This is partially the result of developers offering incentives to buyers in order to move inventory. Supply has also put more downward pressure on median prices for new homes than existing homes.  The supply of completed single-family homes has been trending down recently but is still up 280% versus the bottom in 2022. This contrasts with the market for existing homes, which continues to struggle with convincing current homeowners to give up the low fixed-rate mortgages they locked-in during the pandemic to list their homes. While financing costs remain a headwind, less expensive options and an abundance of inventories may give home sales a modest boost in 2026. In other recent news, the M2 measure of the money supply jumped 1.1% in May, the largest monthly increase since 2021. Despite the sharp monthly gain, M2 is up 5.6% from a year ago, still below its historical growth rate of about 6%, but worth watching closely in the months ahead for signs of more acceleration.  In recent manufacturing news, the Philadelphia Fed Manufacturing Index, a measure of factory sentiment in that region, increased to +10.3 in June from -0.4 in May.  The Richmond Fed index, a measure of mid-Atlantic factory activity, declined to 4 in June from 13 in May. Finally, on the labor front, initial jobless claims from declined 4,000 two weeks ago to 226,000; continuing claims rose 24,000 to 1.810 million.

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