If you took physics in either high school or college, you might remember Newton’s Laws of Motion. If you can’t recall exactly what these are, perhaps you might recollect hearing or reading about them. If not that, well, maybe you didn’t actually take physics.
According to the NASA website, Newton’s Laws of Motion are as follows:
- An object at rest remains at rest, and an object in motion remains in motion at constant speed and in a straight line unless acted on by an unbalanced force. (inertia)
- The acceleration of an object depends on the mass of the object and the amount of force applied. (force)
- Whenever one object exerts a force on another object, the second object exerts an equal and opposite on the first. (action & reaction) (1)
While the United States didn’t even exist when Sir Isaac devised these laws, they mostly apply to the U.S. economy. Of course, I am prone to view most things through an economic lens.
But think about it. Does the economy accelerate at the drop of a hat or stop on a dime? Without some sort of outside pressure or influence? Perhaps it might, but I haven’t yet witnessed it in my career.
As such, I think it is safe to say you need to know where you have been and where you are in order to have a clue about where you are going or hope to go. So, if the economy is growing at, say, a 2% rate of growth, what is the likelihood it will suddenly surge to 5% or fall into recession over the next quarter?
Again, without some sort of outside force?
My experience has been if the economy has been growing at a 2% rate, it is probably wise to use that as the starting point for any future predictions. If that is the way it was last quarter, you can probably expect that to be the case this quarter too, plus or minus a little here and there depending on how clever you want to be.
During the second quarter, the Bureau of Economic Analysis (BEA) made several attempts to accurately calculate, within reason of course, the strength of the U.S. economy during the first quarter of 2026. Its third stab at the GDP equation, released on June 25th, the BEA announced it grew at a 2.1% rate.(2)
This is the economic equivalent of, say, a PBJ and Doritos for lunch. That is better than nothing or potted meat sandwich. No argument. However, it is nowhere near as good as a club sandwich, piled thick with bacon, and homemade fries. Not even close.
However, the BEA’s report also suggested consumer demand was somewhat tepid, and corporate America was spending and investing significant amounts of money on technology.
For instance, ‘personal consumption expenditures’ grew only 0.5% during the first quarter, whereas investments in ‘equipment’ and ‘intellectual property products’ surged 15.8% and 13.8% respectively.(2)
So, what is the likelihood they completely reversed course during the second quarter? Probably pretty low. However, what is the chance those gaudy investment numbers continue to boggle the mind? Due to the law of large numbers, that is also probably pretty low.
Still, those are the starting points for any sort of prediction about the future health of the U.S. economy in 2026.
As I type at 10:08 a.m. (CDT) on July 2, 2026, and based on current economic conditions, a reasonable expectation for U.S. GDP for the near term would be something along the lines of:
In my opinion, the U.S. consumer could continue to grow at a modest pace, reflecting the impact of overall elevated levels of inflation and somewhat sluggish job creation. Conversely, the continued adoption of increasingly sophisticated ‘artificial intelligence’ technology could continue supporting ‘private fixed investment’ at a healthy pace.
Since I am quoting myself in that paragraph, I am not sure how to source or cite it. Regardless, you might notice two imbedded topics: inflation and job growth. Both of these are key for our future economic health.
Inflation Still Bears Watching
First, inflation, as defined by just about every accepted official inflation gauge, has been stubbornly higher than most people would like. During the second quarter, this was largely due to a spike in the price of fossil fuels due to the turmoil in the Middle East.
According to eia.gov, the spot price for WTI (West Texas Intermediate) – Cushing, Oklahoma was $64.51/barrel for February 2026. In March, after the commencement of hostilities, it climbed to $91.38/barrel. It averaged $100.32/ barrel and $102.13/barrel April and May, respectively. Finally, it fell as tensions eased, somewhat, in June to $85.52/barrel. (3)
Obviously, that sort of price increase in such an important commodity will have an impact on consumer prices, and it did.
In the ‘Consumer Price Index Summary’ for May 2026, the Bureau of Labor Statistics observed the following:
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5% on a seasonally adjusted basis in May, after rising 0.6% in April, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 4.2% before seasonal adjustment.
The index for energy rose 3.9 percent in May, after rising 3.8 percent in April and 10.9 percent in March. The energy index accounted for over sixty percent of the monthly all items increase. The index for shelter also increased in May, rising 0.3 percent. The food index increased 0.2 percent over the month as the food at home index rose 0.1 percent and the food away from home index increased 0.3 percent.(4)
At a conference in Sintra, Portugal, on July 1, Chairman Kevin Warsh reaffirmed the Fed’s commitment to keep consumer inflation around 2%. While the CPI-U is not the only official gauge, you can reasonably intuit an aggregate number of 4.2%, as it was this past May, is too high for comfort for the Federal Reserve. (5)
It is important to note that the recent increases in the CPI have happened as crude oil prices climbed due to the turmoil in the Middle East. If energy prices continue to fall, as they did in June, overall consumer inflation could fall as well. If energy prices continue to ease, inflation may moderate further, although future inflation remains uncertain.
Now, should inflation moderate or lessen, it would seem consumer purchasing power would or could improve. If that is the case, the U.S. might get a slight uptick in official ‘personal consumption expenditures’ in the third quarter of 2026 GDP report. After, if you aren’t spending as much money at the pump or for your electricity, you might have a few extra coins to spend on other, arguably more productive, goods and services.
The Labor Market Remains a Key Indicator
Second, as for job growth, any job is a good job. It creates a paycheck, which creates a consumer. Population growth can contribute to long-term economic growth by expanding the number of consumers and workers, although many other factors also influence overall GDP. As such, when we are creating jobs, we are engendering economic growth. Further, I have been doing this a long time, and I can’t remember a doomsday or worst-case scenario happening when employers are adding to payrolls.
That doesn’t mean it will never happen. It might. However, it would be a pretty weird turn of events.
Currently, job growth in the U.S. is slower than it was, but it is still positive. According to the Bureau of Labor Statistics (BLS), for the 12 months ending in June 2026, there was an increase of 506K ‘employees on nonfarm payrolls.’ (6) It is Table B-1 in the July 2, 2026, report. That is less than an average of 50K/month, which isn’t stellar job creation, but it is still creation nonetheless.
Put another way, that is an additional 506K paychecks in the economy, which is far preferable to 506K fewer paychecks. Still, by the end of the second quarter, the labor markets were showing some signs of slowing, at least enough to keep the Fed from being aggressive in raising the overnight rate.
As this paragraph from an article by Jeff Cox on cnbc.com attests:
“The report comes with Federal Reserve policymakers expressing mixed feelings about the economy – mostly positive on growth though apprehensive on inflation as earlier fears about weakness in the labor market have eased. However, the weak report Thursday could change the labor market view.
“For the Fed, this number is fine,” Thomas Simons, senior economist at Jefferies, said in a note. “The pace of job growth is plenty strong enough to maintain a steady unemployment rate and average hourly earnings are solid, but not accelerating. There is no imperative on their part to do anything with rates immediately, and the softening in the pace of job growth suggests that rate hikes are very unlikely to be necessary this year.”
Markets expect the Fed to stay on hold during the summer. Following the jobs number, traders took a potential September hike off the table though futures still point to a potential increase in October, according to the CME Group’s FedWatch gauge.” (7)
As such, heading into the third quarter, the U.S. economy appears to be growing modestly. Inflation is arguably a little too high for comfort, but could fall along with crude oil prices. The labor markets are perhaps a little softer than they were, but employers are still creating jobs. In short, most measures point to continued unimpressive GDP growth, but growth nonetheless.
Back to Newton
All of this takes us back to Newton’s Three Laws of Motion.
As I earlier wrote, according to the BEA, the economy grew at a 2.1% rate during the first quarter of 2026. If we can apply the First Law of Motion to the economy, and I am going to do so regardless, it could continue growing at a pace similar to recent estimates if current conditions persist.
Arguably, during the second quarter, the brouhaha with Iran was an unbalanced force. But with that mess potentially over for the time being, and if recent data are any indication, it may take a significant external event to materially change the economy’s current trajectory. Why? Because our GDP is enormous, absolutely massive. This is the Second Law of Motion.
As for the Third Law, the outside forces have to “exert an equal and opposite amount of force on the economy” in order to stop it cold or even significantly slow it. As I type this on July 2, 2026, the two most obvious, potential extraneous forces would be inflation and job growth.
With inflation at 4.2% and potentially moderating over the next several quarters as fuel prices ease, current data suggest inflation alone is not likely to materially alter the economy’s overall trajectory. Likewise, unless labor market conditions weaken meaningfully, current employment trends do not appear likely to exert enough pressure to significantly change the pace of economic growth.
Therefore, and in conclusion, taken together, current economic data point to an economy that remains fundamentally resilient. While growth could moderate from here, the evidence available today does not suggest a worst-case outcome.
At least that is the way things appeared to me at the start of the third quarter of 2026.
And that, my friends, is how you can apply the basic rules of physics to the U.S. economy if you only try hard enough.
SOURCES:
- NASA Glenn Research Center – What are Newton’s Laws of Motion? Accessed July 2, 2026.
- Bureau of Economic Analysis – GDP (Third Estimate), Industries, Corporate Profits, State GPD and State Personal Income, 1st Quarter 2026. June 25, 2026.
- Energy Information Administration – Petroleum & Other Liquids Spot Prices. Accessed July 2, 2026.
- Bureau of Labor Statistics – Consumer Price Index Summary. June 10, 2026.
- Yahoo Finance – Kevin Warsh: Fed Will Not Be Comfortable with Inflation Above 2%. July 1, 2026.
- Bureau of Labor Statistics – The Employment Situation – June 2026. July 2, 2026.
- CNBC – S. Job Creation Cools in June with Payrolls Growth of Just 57,000; Unemployment Rate at 4.2%. July 2, 2026.
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