US Economy: Weekly Commentary – February 23, 2026

US Market Review

Treasury yields rose. Yield curve flattened. Treasuries lose safe-haven appeal. U.S. stocks higher. Dollar up. Oil surged. Gold climbed. Bitcoin fell. Investors diversify amid risks and supply concerns.

Treasury yields rose during last week. The yield curve flattened during the week to its flattest level since January 27. U.S. 10-year yields jumped on Friday after the Supreme Court struck down President Donald Trump’s sweeping global tariffs. The tariffs had generated significant revenue, helping to contain the budget deficit. Over the past 12 months, annualized customs duties amounted to $364 billion. U.S. Treasuries are increasingly losing their traditional safe-haven appeal, as soaring public debt, concerns over fiscal sustainability, and policy uncertainty under Donald Trump continue to weigh on investor confidence. A weakening dollar, declining “convenience yield” on government debt, and a reduced ability of bonds to hedge equity risk have prompted investors to diversify into alternatives such as German Bunds and gold, reinforcing that sovereign bonds are not risk-free, but only relatively safer than other assets.

U.S. equity markets closed the week higher. Micro-cap and small-cap indices each gained 0.65%, while large-cap stocks rose 1.10%. The “Magnificent 7” advanced 2.50%, led by Amazon, which surged nearly 6%. Amazon has surpassed Walmart in annual revenue for the first time, signalling a notable shift in retail leadership. This milestone highlights Amazon’s strength in cloud computing and advertising, as both companies increasingly compete through AI and technology-driven growth strategies. By sector, consumer staples was the weakest performer, falling 1.80%, followed by materials, which declined 0.70%, while communication services and industrials led the gains, each rising approximately 1.70%.

The U.S. dollar appreciated by 0.64%. WTI crude oil climbed 5.86%, reaching a six-month high amid rising U.S.–Iran tensions and concerns over potential supply disruptions near the strategically critical Strait of Hormuz, which handles roughly 20% of global oil flows. At the same time, Saudi exports declined, and U.S. crude inventories unexpectedly fell, signalling tighter supply and strong demand. Gold rose 1.31%, surpassing $5,000 per ounce, while Bitcoin declined 1.50%.

US Market Views Synopsis

Q4 2025 U.S. GDP grew 1.4%. Business activity slowed in February. PMIs fell. Orders and employment stalled. Consumer sentiment remained subdued. Growth remains robust amid high prices and tariffs.

U.S. economic growth remains mixed but resilient. Q4 2025 GDP expanded 1.4% annualized, below the 3.0% consensus, as a six-week government shutdown and weak trade offset gains from consumer spending (2.4%) and technology-driven business investment (up nearly 25% in software and computing). Residential investment continued to decline, reinforcing a K-shaped recovery, with growth concentrated among high-income households while lower-income consumers face stagnant real incomes and low savings. U.S. business activity slowed sharply in February, with the Composite PMI falling to 52.3, Manufacturing to 51.2, and Services to 52.3, as orders and employment stalled amid weak demand, high prices, adverse weather, and tariffs. First-quarter GDP is tracking roughly 1.5% annualized. Consumer sentiment remained flat, with higher-income, wealthier, and educated households more confident, while lower-income groups feel pressured by persistent prices. Year-ahead inflation expectations eased to 3.4%, suggesting gradually stabilizing outlooks. Overall, growth is expected to remain robust, supported by technology investment and resilient top-end consumer spending, though risks from uneven recovery and price pressures persist.

GDP

US Q4 GDP grew 1.4%, below expectations. Consumer spending and tech investment drove growth. Government shutdown and weak trade limited expansion. Inflation slightly higher; K-shaped recovery persists.

US GDP in the fourth quarter of 2025 came in well below expectations, expanding 1.4% annualized versus the 3.0% consensus, as a six-week government shutdown sharply curtailed federal spending, subtracting 1.15 percentage points from headline growth, and net trade added only 0.1 points after a strong October trade report failed to repeat in November and December. Final sales rose 1.2%, supported by consumer spending of 2.4% and overall business investment of 3.8%, though residential investment fell for the fourth consecutive quarter, reflecting ongoing weakness in housing. Technology-related capital expenditure, particularly in software and computing, surged nearly 25% YoY, highlighting the concentration of growth in the high-tech sector, while other business investment continues to decline, reinforcing a K-shaped recovery. On the consumer side, spending remains heavily skewed toward the top 20% of households, driven by high incomes and rising wealth, whereas the lower 60% face stagnant real disposable incomes, low savings (3.6%, the lowest outside the pandemic since 2008), and subdued sentiment due to job security concerns and potential tariff-related price pressures. Inflation came in slightly hotter than expected, with the GDP deflator at 3.7% and core PCE at 2.7%, but readings are expected to ease in January, aided by lower airfare inputs, leaving little prospect of a Fed rate cut before Chair Powell’s anticipated replacement in May. Looking ahead, the reopened government is expected to provide a boost to first-quarter 2026 growth, while normalized trade may act as a mild drag, but the US is on track for a sixth consecutive year of 2%+ GDP expansion, supported by high-income consumer strength and technology-driven investment, though risks remain around the narrowness of growth and the persistence of K-shaped dynamics in both consumption and business investment.

We expect growth to remain robust. Inflation is likely to stay elevated. In May, following Powell’s departure, monetary policy is expected to pivot, with interest rates gradually declining.

Business Activity

U.S. business activity slowed to a ten-month low in February. PMIs fell. Orders and employment stalled. First-quarter GDP may grow 1.5% annualized amid weak demand, high prices, and tariffs.

U.S. business activity slowed sharply in February, expanding at the slowest pace in ten months as weak demand, rising prices, and adverse weather weighed on both manufacturing and services. The Composite PMI slipped to 52.3 from 53.0 in January, its lowest since April 2025 and below comparable readings in the UK and Japan. The Services PMI declined to 52.3 from 52.7, while the Manufacturing PMI fell to 51.2 from 52.4, missing consensus forecasts; new orders fell for the second time in three months, and employment growth stalled across sectors, with the employment index hovering near a standstill at 50.2. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that the slowdown reflects “weakened demand, high prices, and adverse weather” and that the PMI readings point to first-quarter GDP growing at an annualized rate of roughly 1.5%, a marked deceleration from the robust expansion seen in the second half of 2025. While some firms anticipate the slowdown may be temporary as extreme weather passes, reflected in rising business growth expectations to the highest level in over a year, overall confidence remains muted amid political uncertainty and trade policies, including tariffs, which continue to drive widespread price pressures, reduce affordability, and constrain sales growth for many businesses.

We expect U.S. growth to remain robust. Despite February’s slower PMIs, demand and employment signals suggest underlying resilience, supporting steady GDP expansion amid ongoing price and policy pressures.

Consumer Sentiment

Consumer sentiment barely changed. High prices persist, while wealthier and educated consumers feel better. Year-ahead inflation fell to 3.4%. Long-term expectations remained steady at 3.3%, and uncertainty decreased.

Consumer sentiment stagnated this month, increasing just 0.2 points from January, with all index components showing only marginal changes, suggesting that consumers perceive little difference in the economy from last month. Concerns about high prices remain persistent, with 46% of consumers spontaneously citing inflation’s impact on personal finances, a level that has exceeded 40% for seven consecutive months. Overall sentiment is down 13% from a year ago and 21% from January 2025. However, experiences vary widely across the population: sentiment rose significantly among the largest stockholders, higher-income households, and college-educated consumers, reflecting their stronger income prospects and investment portfolios, while those without stock holdings or with lower income or education levels saw declines. Year-ahead inflation expectations fell from 4.0% last month to 3.4%, the lowest reading since January 2025, though still above the 2.3 to 3.0% range seen in the two years before the pandemic. Long-run inflation expectations remained steady at 3.3%, slightly above the 2.8 to 3.2% range of 2024 and historically higher than the sub-2.8% readings typical in 2019 to 2020. Uncertainty around inflation expectations, measured by the middle 50% of responses, dropped to its lowest levels since December 2024 for the short run and October 2024 for the long run, reflecting more stable consumer expectations despite ongoing price pressures.

We expect consumer sentiment to remain subdued due to persistent high prices, while wealthier and educated households stay relatively confident. Easing short-term inflation may gradually support broader confidence.