CRIB SHEET: The New Year

Happy 2026! It should be the seventh year of our Roaring 2020s scenario, with three more to go. We first wrote about this scenario on August 11, 2020, in our Morning Briefing titled "Another Roaring Twenties May Still Be Ahead." We predicted, "So far, the 2020s has started with the pandemic, but there are plenty of years left for the prosperous 1920s to become a precedent for the current decade. If so, the driver of the coming boom will be technology-enhanced productivity, as it was during the 1920s."

So far, so good. Productivity grew at a fast clip last year and should do so again in 2026. If it does, real GDP could increase 3.5% this year, and inflation should fall to 2.0%. On the demand side of GDP, consumer spending should remain resilient as retiring Baby Boomers continue to spend their $80 trillion in net worth. If that’s the case, then disposable personal income growth is likely to be slow, and the savings rate is likely to fall toward zero and even turn negative by the end of the decade. Capital spending should remain strong, especially for technology hardware and software. Both fiscal and monetary policies will be even more stimulative in 2026 than last year.