US Economy: Weekly Commentary – May 25, 2026

US Market Review

Markets were mixed. Short-end yields rose. Long-end yields fell. Equities broadly advanced. The dollar strengthened. Oil declined on easing geopolitical tensions. Gold softened. Bitcoin gained.

U.S. Treasury markets delivered a mixed performance over the week. The short end underperformed, with the 2-year yield rising by more than 5 basis points, partly influenced by comments from Federal Reserve Governor Waller. In contrast, the long end strengthened, as the 30-year yield declined by approximately 5.20 basis points, reflecting firmer demand for longer-duration bonds. Separately, Turkey materially reduced its exposure to U.S. Treasury securities in March, selling nearly its entire position to support the lira amid heightened market volatility. Holdings fell from roughly $16 billion to $1.8 billion, an 89% decline, as authorities also deployed foreign exchange and gold reserves in efforts to stabilize the currency during a period of geopolitical-driven stress.

Equity markets ended the week higher, with breadth led by smaller capitalizations. Micro-cap stocks gained 2.65%, followed closely by small caps up 2.70%, while large-cap equities advanced 0.88%. The “Magnificent 7” underperformed, declining 0.70%. At the sector level, performance was broadly positive, with gains across most areas; utilities, healthcare, and real estate were the strongest performers, each rising more than 3%, while communications and materials were the only sectors to finish in negative territory.

In foreign exchange markets, the U.S. dollar strengthened modestly, rising 0.20% against the euro. Commodity markets saw notable weakness in crude oil, with WTI falling 8.20% as expectations of progress in U.S.–Iran negotiations reduced geopolitical risk premiums and raised prospects for improved supply stability, particularly in the Strait of Hormuz. Gold declined 0.73% but remained elevated above $4,500, while Bitcoin advanced 1.90% over the week.

US Market Views Synopsis

Manufacturing strengthened while services weakened, leaving overall growth modest as inflation, supply disruptions, and weak demand persist, with uneven momentum and continued economic fragility expected ahead.

U.S. private-sector activity expanded at a modest pace in May, with the Composite PMI steady at 51.7, reflecting uneven growth across the economy. Manufacturing strengthened to a four-year high, with the Manufacturing PMI rising to 55.3 as firms boosted output, rebuilt inventories, and responded to stronger orders amid supply disruptions and higher costs linked to geopolitical tensions and energy price pressures. However, gains were partly precautionary, driven by stockbuilding rather than strong underlying demand, as new orders softened, export demand remained weak, and supplier delays and input shortages intensified. In contrast, services activity slowed toward stagnation, with the Services PMI easing to 50.9 as weaker demand, especially in consumer-facing and export-oriented segments, weighed on growth. Employment in services declined, contributing to a broader slowdown in hiring across the private sector, while elevated input and selling prices continued to pressure margins and demand. Overall, inflationary pressures, supply chain disruptions, and geopolitical uncertainty limited economic momentum. Looking ahead, manufacturing may offer short-term support through inventory rebuilding, but services weakness and persistent price pressures are expected to keep overall growth subdued and uneven.

Business Activity

Manufacturing strengthened on inventory building and higher costs. Services weakened. Overall growth remained modest. Inflation pressures persisted amid uneven demand and ongoing supply disruptions.

U.S. private-sector activity expanded at a modest pace in May, with the Composite PMI unchanged at 51.7, indicating continued but uneven growth across the economy. Stronger performance in manufacturing was offset by weaker services activity, while overall demand showed signs of softening amid rising costs, supply chain pressures, and geopolitical uncertainty. Growth conditions remained broadly subdued, with economic momentum constrained despite ongoing expansion.

Manufacturing activity climbed to a four-year high, with the Manufacturing PMI rising to 55.3 from 54.5 in April. Output accelerated to its fastest pace since 2022 as firms increased production in response to stronger orders and rebuilt inventories to guard against potential shortages and price spikes linked to the U.S.–Israel–Iran conflict. Disruptions to shipping through the Strait of Hormuz contributed to higher energy costs and broader supply constraints, including shortages of inputs such as aluminum and fertilizers. Supplier delivery times lengthened significantly, reflecting worsening supply conditions, while factories also reported a sharp rise in both input and output prices as cost pressures intensified. Despite increased hiring, new orders softened and export demand remained weak, suggesting that recent gains were partly driven by precautionary stockbuilding rather than underlying demand strength.

In contrast, the services sector edged closer to stagnation, with the Services PMI slipping to 50.9. Activity growth slowed as demand weakened, particularly in consumer-facing and export-oriented industries. International demand deteriorated further, with services exports declining at a multi-year record pace. Employment conditions also weakened, with job losses in the sector contributing to a broader decline in private-sector hiring, which fell to a 21-month low. Elevated costs and rising selling prices continued to weigh on demand and sentiment, reinforcing signs of fragility in services activity.

We expect manufacturing to provide short-term support from inventory rebuilding, while services remain weak under higher prices and softer demand. Overall growth is likely to stay modest, with inflation pressures limiting momentum.

Consumer Sentiment

Consumer sentiment fell for a third month due to higher gas prices and inflation concerns, hitting near 2022 lows, while short- and long-term inflation expectations both rose further.

Consumer sentiment declined for a third consecutive month as supply disruptions in the Strait of Hormuz pushed gasoline prices higher, bringing overall sentiment to just below the previous historic low recorded in June 2022. Cost of living remains the dominant concern, with 57% of consumers spontaneously citing high prices as eroding their personal finances, up from 50% last month, and the sharpest declines were seen among lower-income households and those without college degrees, who are more exposed to rising fuel and essential goods costs. Politically, Independents and Republicans experienced notable drops in sentiment, both reaching their lowest levels of the current administration, while Democratic sentiment remained largely unchanged. At the same time, consumers increasingly fear that inflation will broaden beyond fuel prices and persist over the long term. Year-ahead inflation expectations rose slightly from 4.7% to 4.8%, well above the 3.4% recorded in February 2026 before the Iran conflict and higher than all 2024 readings, while long-run expectations increased more sharply from 3.5% in April to 3.9% in May, surpassing the 2.8%–3.2% range seen in 2024 and driven largely by increases among Independents and Republicans, with long-run expectations for Republicans now more than double their February 2025 levels.

We expect that consumer sentiment will continue weakening as fuel-driven inflation pressures persist, pushing expectations higher and deepening cost-of-living concerns across households.