Macro Musings: What to Expect From Next Year’s Economy

Few market watchers expect overall inflation to pop back to truly high levels, say 5% or more. But many do think it will hover around its current levels as increases in some categories (think food and electricity) negate easing in other categories. As The Wall Street Journal’s chief economics correspondent and Fed expert, Nick Timiraos, tweeted Dec.15, “the hawkish argument is no longer really about acceleration; it’s about the lack of a clear path to deceleration.”

Come spring, prices will begin to lap tariff-related increases from earlier this year, which will help chart a possible path—if tariffs actually do turn out to be one-off price adjustment and businesses don’t feel forced to continue to raise prices. One way to slower price appreciation is a scenario no one wants: A drop in demand steep, broad and sustained enough to force companies to stop hiking prices.

Hiring: Poised to pick up?

The steady cooling of the labor market has been one of the macro trends of 2025. In the face of uncertainty, companies have as a group slowed their hiring pace, trimmed their workforce where they think they can and committed fewer dollars to wage increases. The pendulum has swung decisively from the not-long-ago days of the Great Resignation.

On top of that, the economy has in recent years become increasingly weighted toward large companies. The Trump administration’s tariff policies have amplified that dynamic: In a recent market snapshot, Charles Schwab Chief Equity Strategist Liz Ann Sonders pointed out that businesses with at least 500 employees have added more than 5% to their payrolls since the end of 2023. Those with fewer than 20 workers have collectively grown less than 2% and firms with 20 to 49 employees were flat—before turning south as tariffs took hold this summer.

And yet: If you’re looking for an encouraging data point from the job market, consider the most recent National Federation of Independent Business jobs report. Job-creation plans among the leaders of small firms who responded to the trade group were at their highest since the near-euphoria in the wake of President Trump’s election late last year.

Similarly, a net 24% of respondents said in November that they plan to raise their compensation in the next three months. The last time that reading was that high was also in December 2024.

The upbeat take here: If small businesses—who typically lack large corporations’ cost-control levers, negotiating clout and general financial flexibility—are starting to move the dial on hiring, the worst of tariff and policy uncertainty just might be behind us.

In closing: Productivity buzzword bingo

And if that’s the case, those large corporations who have been chiseling away at their operations and boosting efficiency since the beginning of tariff turmoil—and really since the post-COVID rebound—also will be in solid shape in 2026 even if GDP growth maintains its roughly 2% pace.

On a Dec. 10 webcast previewing the economic environment of 2026, The Conference Board Senior U.S. Economist Yelena Shulyatyeva said she was optimistic that investments made in recent years—with new technologies such as artificial intelligence only now starting to contribute—will add to above-average productivity gains made since COVID. That capital deepening, where the value of machinery and infrastructure grows relative to labor, can add to future growth in the same way that the widespread adoption of computers and the internet did in the 1990s.

Nick Colas, co-founder of DataTrek Research, made a similar case in early December speaking to Josh Brown of Ritholtz Wealth Management. The tariff and broader policy uncertainty, he said, pushed many management teams to (again) get (more) serious about efficiency. Investors have rewarded companies for paying closer attention to their margins and it’s likely that attitude sticks around.

“You want enough concern to create good decisions,” Colas summed it up, starting at 22:15 of this video.

For our money, “productivity” is a front-runner for 2026 business word of the year.