Last week, the first estimate of gross domestic product, or real GDP growth for the second quarter of 2026, was released, and it showed a slowdown in economic activity across the U.S., although it is still in positive territory at 1.5% annualized (or 2.1% comparing to Q2 of last year).

Declines in government spending and increases in imports (which are a subtraction to GDP) both contributed to the subpar economic performance in Q2.

Consumer spending and private fixed investment were the largest contributors to growth. If we do not adjust for inflation (called “nominal GDP”), growth stood at 7.9%. Nominal growth is almost always higher than inflation-adjusted growth, but not by that much, indicating the impacts of higher prices.

Although it’s good to see that consumers are still spending as that drives business growth, it’s important to stress that the U.S. savings rate data was also just released, and it’s well below the approximate 8% historical average.

June’s savings rate stood at 2.7%, highlighting for me that consumer spending appears to be mostly driven by higher-income groups, while lower-income groups appear to be drawing down savings. Also significant is the 7.1% serious delinquency rate (90-plus days) on credit cards.

I would like to see some recalibration of the middle- and lower-income household budgets, although how to get there is tricky for households with higher prices alongside stagnant wages.

Some relief in oil prices led to an improvement in The University of Michigan Consumer Sentiment index, which increased to 54.4 after a (second-lowest-on-record) index of 49.5 in June. While confidence remains well below historical averages, households appear somewhat less pessimistic than they were earlier this year as inflation has moderated, financial markets have remained relatively stable, and unemployment rates remain low.

Interestingly, recent reporting has questioned whether political polarization has exaggerated swings in consumer sentiment over recent years, reminding us that confidence surveys often measure perceptions (and frustrations) about current politics as much as they measure economic conditions.

I would postulate that household budgets largely dictate how people are feeling, and as a country we got very used to low and stable prices pre-pandemic. But that low inflationary period is behind us, and no one can really escape higher prices (across all goods and services) on any given day. They are everywhere and that weighs heavily on people’s perceptions of the economy, as well as most people’s feelings about state and federal government.

Thankfully, inflation did ease some during June following May’s oil-related price shock. The Consumer Price Index declined 0.4% in June on a seasonally adjusted basis after increasing 0.5% in May. Again, it’s all about oil prices.

Year-over-year inflation slowed from 4.2% to 3.5%, while core inflation, which excludes food and energy, was unchanged at 2.6%. The fact that the core inflation measure was unchanged highlights that when you pull out energy prices, inflation didn’t move from May to June. This week, July’s CPI report will be released and, depending on what it shows, markets will undoubtedly rip up or rip down as volatility has been the one constant in the stock market.

This brings up an interesting point: Short-term oil price shocks typically do not cause major disruptions or recessions in the broader economy. Especially with this recent oil shock, prices have not increased as much as the dire predictions, and this is for a host of reasons.

The U.S. is now a major oil producer, we’ve drawn on oil reserves, there are more energy efficiencies, and China is rapidly electrifying (depressing global oil demand and therefore, prices) among other reasons. I went into more detail in last week’s Gazette article. But what about inflation and overall economic growth if energy prices stay elevated? Most experts think the probability of a recession in that case is significantly higher.

This is true for two reasons. One, higher energy prices dig deeper into production costs that businesses begin to pass onto consumers more so. Two, if gasoline and virtually all other prices stay higher for longer, consumers and businesses begin to expect higher prices in the long term and that changes the behavior of both consumers (for example, needing higher wages to compensate for higher prices) and businesses (for example, quickly raising prices to cover recurring cost increases).

This is when you can have “runaway inflation,” although the U.S. has only made it to two-digit inflation rates three times in its history (not three or four digit inflation rates as other countries have experienced). All to say, inflation can be a slippery slope if it’s sustained, and as such, we are not immune to the negative impacts of higher energy prices if prices stay higher for longer.

The International Monetary Fund estimates that a sustained 10% increase in oil prices typically raises headline inflation about a half percentage point. So, if gas prices are up about 30%, that would add almost 1.5% to headline inflation. While that may not sound like a lot, remember that’s the average price increase across all goods and services.

Now, although inflation abated a bit in June due to the lower gas prices, it is still above target. Therefore, interest rates remain elevated. The average 30-year mortgage rate edged up from 6.44% in May to 6.49% during June, while the prime lending rate remained at 6.75% (putting average credit-card interest rates at 22%). Although borrowing costs have stabilized, they continue to weigh on housing affordability, business investment and commercial financing decisions.

The other major indicator that the Federal Reserve cares about in interest rate decisions is the U.S. unemployment rate, which declined slightly from 4.3% in May to 4.2% in June (seasonally adjusted). Colorado’s seasonally adjusted unemployment rate remained unchanged and lower than the U.S. at 3.9%. El Paso County’s NSA rate (local data is not available any other way) rose from 3.8% to 4.1%.

Following the “Fed mandate,” these low unemployment rates indicate interest rates should not be cut as this aspect of the economy is just fine. Reinforcing this is the increase in U.S. job openings over the past couple of months.

Colorado Springs job openings declined modestly from 19,809 in May to 19,173 in June, while the number of unemployed residents increased approximately 8% to 15,797. Consequently, the workers available per job opening increased to 0.82, but this is still a tight labor market with less than one worker available per job.

Registered nurses and personal care aides are both in the top 10 local job openings and health care/social assistance is by far the largest employer. None of this is surprising given our aging U.S. population.

In terms of real estate, existing home sales across the Pikes Peak region remained virtually unchanged at 1,229 sales in June. Builders pulled substantially more building permits for single-family homes during June, while multifamily permitting slowed considerably although this is after robust multifamily permits pulled during 2025.

Nationwide and locally, home sales are below historical trends due to higher interest rates on top of higher home prices, which equates to fewer buyers (among other reasons). The bad news here is that there is now some talk about interest rate hikes, whereas 18 months ago everyone was assuming interest rates would go down and housing would have a healthy rebound. But the inflation discussion above explains the not-impossible current scenario of interest rate increases or, at a minimum, interest rates that don’t change.

That does not bode well for homebuyers, especially first-time buyers. The Wall Street Journal had a recent article, “See How Owning a Home is Getting More Expensive in Every Way” that shows the percentage increase in the cost of each component of homeownership from 2019 to 2025. Overall, we (painfully) know that inflation has increased by 26% overall in that period, but homeownership costs including principal, interest, property taxes, insurance, and maintenance/emergency repairs have increased even more so with a 39% increase.

Commercial real estate (CRE) presents an interesting picture. Locally, vacancy rates improved modestly for office and retail space during the second quarter, while industrial vacancy increased somewhat. However, vacancies across markets are higher than they were a couple of years ago.

In terms of lease rates, office rents continued to rise despite higher vacancies, suggesting that demand remains strongest for high-quality space (and this is a nationwide trend). Medical office vacancies remained unchanged, reflecting continued stability in health care-related CRE, although I wouldn’t say the approximate 10% vacancy rate is a “healthy” market.

Both nationwide and locally, the CRE market seems increasingly divergent. Office buildings continue to struggle in many cities, while apartments are working through a temporary supply glut. Meanwhile, industrial warehouses, neighborhood retail centers, and especially data centers are seeing much stronger demand.

Retail is doing better than expected, because relatively little new retail space has been built since The Great Recession and that lower supply has buoyed lease rates while keeping vacancies low. Just a few years ago, office vacancies dominated conversations about commercial real estate, but today one of the industry’s biggest challenges isn’t finding tenants — it’s finding enough electricity to power new data centers.

As artificial intelligence, cloud computing and digital infrastructure continue to expand, power availability and community concerns about energy costs have become some of the primary constraints on commercial real estate development, illustrating just how quickly structural changes can reshape the economy. Texas is by far the nation’s largest producer of wind energy and, depending on conditions, wind and solar combined provide at a minimum 40% and at a maximum 75% of the state’s electricity.

While we are still in peak, local tourism season, I’ll lastly highlight the good news that, in 2025, our tourism spending increased to $2.4 billion (up $100 million from 2024). Employment stayed about the same while associated local tax receipts increased to $154 million (+3.3% from 2024). This is quite different than tourism across the U.S., which had modestly lower domestic travel and significantly lower international travel.

Americans continued traveling within the U.S., although many opted for shorter and more budget-conscious trips. International tourism declined in 2025, largely because of fewer Canadian visitors (the biggest factor), a strong U.S. dollar, visa and border frictions, and increased competition from overseas destinations. The result was billions of dollars less in U.S. tourism revenues.

However, this wasn’t true locally. Colorado also has reason to celebrate the recent No. 1 ranking in education. Economists can indeed deliver some uplifting, good news!

Tatiana Bailey is executive director of the nonprofit Data-Driven Economic Strategies. Other Gazette articles, TV segments, DDES monthly economic dashboards with technical explanations, and how to sponsor their work can be found at ddestrategies.org.