Augustine (Gus) Faucher is senior vice president and chief economist of The PNC Financial Services Group, serving as the principal spokesperson on all economic issues for PNC.
Prior to joining PNC as senior macroeconomist in December 2011, Faucher worked for 10 years at Moody’s Analytics (formerly Economy.com), where he was a director and senior economist. He was responsible for running the firm’s computer model of the U.S. economy, edited a monthly publication on the U.S. economic outlook, covered fiscal and monetary policy, and analyzed various regional economies. Previously, he worked for six years at the U.S. Treasury Department, and taught at the University of Illinois at Urbana-Champaign. He was named senior vice president in March 2015, deputy chief economist in February 2016, and to his current role in April 2017. Faucher is frequently cited in international, national, and regional media outlets including The Wall Street Journal and The New York Times. He has appeared on ABC World News, CBS Evening News, NBC Nightly News and Nightly Business Report, and is regularly featured on CNBC, CNN and Fox Business. In addition, he appears regularly on CBS Radio, NPR and Marketplace.
Webcast Transcript:
Gus Faucher: Hello, I'm Gus Faucher, Chief Economist for the PNC Financial Services Group with an economic outlook for the Second Quarter of 2026. The US economy remains solid in the spring of 2026, but we are seeing slower job growth. In 2023, the economy added about 220,000 jobs per month on average. In 2024, it was down to 160,000 jobs per month, and in 2025 it was about 15,000 jobs per month.
Some of that was due to the government layoffs that took place in 2025, but even looking at the private sector, job growth slowed last year to about 30,000 per month. That being said, employment is still much higher than it was before the pandemic. The unemployment rate, which got down to 3.4% briefly in 2023, that was a 50 year low; is up over the past couple of years to around 4.3% or so, but that still is a historically low unemployment rate and indicates that the labor market remains in solid shape.
That being said however, we are seeing job growth increasingly concentrated over the past few years. In 2022, we were adding about 7 million jobs over the past year with most of those jobs taking place in industries outside of healthcare. But since 2022, we've seen job growth outside of healthcare slow dramatically.
And in fact, in early 2026, all of the jobs added over the last year have come in healthcare. That is, we have seen net job losses in industries outside of healthcare. And the economy can't continue to grow indefinitely with job growth only coming from one industry. That being said, there are some indications that the breadth of job growth is widening somewhat in early 2026, and that bodes well for continued employment growth this year.
We have had a couple of geopolitical factors that are weighing on the US economy this year. One of which is the recent Supreme Court ruling, which invalidated many of the Trump administration's tariffs that were imposed in the Spring of 2025. However, the administration has taken some steps to work around the Supreme Court ruling using other sections of the law to raise tariffs, and so tariffs in early 2026 are running at about 10 or 11%.
That is the tax on goods imported to the United States is around 10 or 11% currently. That's up from around 2% in 2024. So that's a tax increase of about 1% of GDP that is making prices for imported goods more expensive. Businesses are passing those higher prices along to consumers, and that is acting as somewhat of a drag on economic activity.
And then of course, we had the situation with Iran. With Iran closing the Straits of Hormus, we've seen a big increase in oil prices and gasoline prices in particular. And that will be a significant drag on consumer spending this year. So far, gasoline prices are up about a dollar per gallon, and that means that the amount of money that Americans will be spending on gasoline is going to be about $120 billion dollars if those higher gasoline prices last for a year. That means that's $120 billion dollars that Americans don't have to spend on other goods and services. And so that will be a drag on economic activity. The longer gasoline prices remain elevated, the higher they go, the more the drag on the economy, and we do expect that that is going to continue, at least in the near term.
The good news, however, is that the US economy is much more oil efficient than it was back in the 1970s when the Arab oil embargo and then the Iranian Revolution severely disrupted oil supplies and caused recessions in the US economy. Since 1978, the US economy has grown by more than three times.
The economy is three times larger than it was back in 1978, and yet the amount of energy that we get from petroleum is actually slightly lower than it was in 1978. We're using other sources like natural gas and renewables. We're much more energy efficient in our economy. We've moved towards more fuel efficient industries like healthcare and other service industries, and given all of that, we're consuming less oil than we were back in 1978.
And so therefore, the disruption to the US economy from higher oil prices in particular will be smaller than it was 40 or 50 years ago. So we are expecting that higher energy prices, the disruptions caused by the war with Iran will weigh on economic activity this year, but we still expect to see economic expansion.
However, higher oil prices will make it more difficult for the Federal Reserve to do their job. The Fed has set an inflation objective of 2%. Right now inflation is running closer to 3% and in fact moved higher in 2025. The Fed will be cautious about cutting interest rates. Oil prices will move inflation higher in the near term.
The Fed is already concerned that inflation is too high, and so the Fed will be reluctant to cut rates anytime soon. Yet at the same time, we are seeing job grow slow and a slightly higher unemployment rate. If inflation remains elevated for an extended period of time and the job market continues to soften the Fed will face a dilemma; cut rates to support the labor market and potentially raise inflation or keep rates elevated to fight inflation and perhaps see a further softening in the job market.
That being said, we do expect that the US economy will continue to hold up this year with economic growth of around 2%; a little bit lower than the pace that we've seen over the past few years, but still a solid number. The unemployment rate, which is at about 4.3% currently, is expected to remain right around that level throughout 2026 and into 2027.
We do expect that the disruptions from Iran will be temporary, that energy prices will move lower in the second half of this year, that we will see less tariff driven inflation in the second half of this year, and that will allow the Federal Reserve to cut interest rates a couple of times in the second half of 2026, and that should support continued economic growth late this year and in 2027.
Thank you very much for your time. You can see all of our materials at pnc.com/economicreports, and you can follow me on X, formerly Twitter, @gusfaucherpnc. Thank you.
