1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 59
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
It has been a strange quarter for the U.S. economy, shaped by the longest running government
shutdown in the country’s history that lasted 43 days, eclipsing the previous record that –
somewhat notably – also occurred during President Trump’s first term in office. While
government shutdowns tend to have minimal and short-lived impacts on financial markets, with
this episode being no exception, delays in the release of official government data have made it
challenging to get a clear read on how the economy is faring.
Looking ahead, we expect real GDP growth to slow to 1.6% in 2026 from an estimated 1.9% pace
in 2025, before picking back up to 2.1% in 2027. While growth is expected to improve in 2027, the
forecasted pace would remain shy of the 10-year pre-Covid average of roughly 2.4%.
Growth is strong but the jobs market is starting to come under duress
Past-due economic data released up to this point have sent mixed signals. On one hand, thirdquarter GDP growth registered a larger-than-expected pickup. On the other, the labour market is
showing clearer signs of softening, while consumer bifurcation is becoming more apparent with
high-income households accounting for the bulk of consumption.
On the GDP front, the U.S. economy registered a 4.3% quarter-over-quarter (QoQ) annualized
expansion in 3Q25, a whole percentage point above the median consensus estimate. Personal
consumption increased to 3.5% QoQ from 2.5%, reflecting widespread spending across goods
and services. Gross private domestic investment was more or less flat as a positive, albeit slower
uptick in non-residential fixed investment offset continued weakness in residential investment.
Net international trade added 1.6ppt to growth after 2Q’s 4.8ppt contribution as exports rose and
imports fell. Meanwhile, government spending was positive, and inventories were a small drag.
U.S. GDP rose more than expected in 3Q25 amid resilient personal consumption and private
investment snapping back to a flat reading
8%
QoQ annualized % chg
6%
4%
2%
0%
-2%
-4%
-6%
4Q24
Pers. consumption
1Q25
2Q25
Gov't expenditures
Priv. inv.
3Q25
Net exports
GDP
Source: Bureau of Economic Analysis, Bloomberg Finance LP, Scotia Wealth Management
On the employment side of the ledger, the Bureau of Labor Statistics released a partial nonfarm
payrolls report for October alongside a full report for November. Leading up to this point,
investors came to increasingly rely on secondary data points from providers like ADP to gauge
labour market conditions, while other reports from the likes of Indeed and Revelio also garnered
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