December 1, 2025

Hello, everyone. I’m Michael Feuz, economist here at ITR Economics. This week, I’m filling in for Taylor St. Germain. And as we’re entering this holiday season, where most of you are probably in planning season or kind of putting the bow as we get closer to Christmas on your budget for the year. And I just want to talk briefly about kind of reinforcing our outlook for ’26, but really talking about the ingredients for economic growth that’s already baked into the pie, right? Where we’re, Thanksgiving in a few days at the time I’m recording this, we’re going to be eating a lot of pies. So let’s use the food analogy.

So ITR’s outlook, our outlook for next year is, 2026 is going to yield more growth across the economy than ’25. It’s going to be a year of accelerating growth. But I’ve been mentioning as I go around to different conferences, association meetings, and giving keynotes, talking about how despite the uncertainty we’ve kind of had this year and the apprehensions with trade policy, with some of these downward revisions on employment numbers, there are larger macroeconomic factors that are already at play that are going to drive growth. And I’ve been calling them the ingredients of growth.

So first, let’s just briefly start with the consumer. 68% of GDP is consumption, the consumer’s king. Great metric that we’d like to look at always for the consumer is U.S. Total Retail Sales. From a 12 month-moving-total, that 12 MMT, it’s at 8.594. So almost $8.6 trillion that consumers spent in the last 12 months. On our growth rate or that 12/12 rate of change is at 3.7%, with the quarterly growth rate or the 3/12 at 4%. So it’s above the 12/12, that 3/12, it’s showing some upside momentum. And probably the bigger part of the story there is if we deflate retail sales there, it stays at close to 1%, which tells us volumes are starting to pick up. The consumer is both willing to pay the higher price driven by inflation and they’re putting more in the cart. So they’re getting more active.

Now we can peel back the layers of the onion there and look at some sub components of retail sales. And we do see a little bit of a difference where what could be qualified as more discretionary spending is absolutely softer. So there is still some priced exhaustion or weariness with the consumer. The one that really sticks out to me is Gas Station Retail Sales. That’s down 4.2%. It is in a phase A recovery, but it is showing that, hey, we’re pumping our gas and we’re not going in to buy our Slurpees. I call this series our U.S. slurpee sales index. It’s a true trillion dollar number. We spent a lot of money inside gas stations and that’s down about 4.2%. Now, the 3/12 is only down 2.3, so we’re in that recovery phase there.

Now, let’s take it to the B2B activity or business activity, thinking again about the ingredients to growth in this recipe for economic growth. We’re seeing B2B spending pick up. So this is Nondefense Capital Goods New Orders that we look at here. It’s up 1.4% year over year and rising. So it’s in that phase B accelerated growth. Uncertainty, that trade policy uncertainty, economic policy uncertainty, has absolutely been a bit of a drag on it this year, but there are stronger forces at play. And the two that I’m looking at here is first, Domestic Non-financial Industries Corporate Profits. So profitability, corporate profitability at a record high right now. Now, the growth rate is only 1%. So seeing a little bit of softness on the year-over-year growth in profitability, but we still know businesses are very profitable, more profitable than last year. That 1% growth may be showing some early signs of some margin pressure starting to mount. And this is something we expect to be one of the key obstacles amidst the growth next year.

Now, lastly, what I’m more excited about looking at that B2B activity is Domestic Corporate Cash Holdings. Now, this is cash on hand or liquidity for businesses. It’s one very elevated, up 37.4% from the pre-pandemic or the 2019 level. So we’re flushed with cash still. But more importantly, we’re starting to see those cash levels expand, from late last year through into the second quarter of this year, we saw those cash levels beginning to mildly decline. This is going to make any C-suite executive in charge of a budget a little more cautious with their CapEx spending. Certainly saw a lot of major projects get delayed, hesitation, not canceled, just kind of kicked the can down the road. Now we’re seeing those cash levels starting to expand again.

This is going to set up for more active B2B activity and CapEx spending next year. And together, this with a consumer who has, from an income perspective, is keeping pace or outpacing inflation and spending more and the businesses with plenty of cash and profitable year over year. These are the key ingredients for growth. So from your own business planning perspective, are you ready for growth? Do you have the capacity you need? And with that, keeping in mind, this is going to be a different growth phase. Margin pressures are going to be more and more a pronounced obstacle. So always keep in mind, what are those efficiency gains I can make? How am I protecting and preserving my bottom line? But we’re in a growth phase. Things are going to heat up as we move into 2026.

So with that, I’m Michael Feuz again, filling in for Taylor St. Germain here on TrendsTalk. I look forward to joining you again in the future. Everyone, have a happy holiday season. I look forward to talking to you again soon.