May 18, 2026 – Economic indicators have remained relatively steady in recent weeks, pointing to an economy that is still on solid footing. Consumer spending, hiring, and business sentiment have held up better than expected, although inflation continues to pose a lingering risk that could keep pressure on households and delay meaningful relief in interest rates. Even so, the economy’s underlying resilience offers reason for cautious optimism as markets look ahead to a more stable path in the second half of the year.

Wages cannot keep up as inflation reaches the highest in nearly three years: Consumer prices rose sharply again in April and recorded the biggest annual increase since May 2023, according to the Bureau of Labor Statistics’ latest report. The headline Consumer Price Index (CPI) soared 0.6% from the prior month and rose 3.8% from the same month last year. The spike was largely due to energy prices, which jumped 17.9% year-over-year and accounted for more than 40% of the monthly gain. Airline fares which accelerated by 20.7% from last year, and shelter costs which rose 3.3% also contributed to the surge in inflation last month. With overall price level growing at the fastest pace in nearly three years, Americans’ wages are no longer outpacing inflation, as real average hourly wages slipped 0.5% for the month and dropped 0.3% from a year ago.    

Retail sales growth suggests consumers are not pulling back drastically: Consumer spending remained on the rise in April despite rising gasoline prices, according to the latest report released by the Commerce Department. On a year-over-year basis, non-inflation adjusted sales for retail trade and food services went up by 4.9% from April 2025, the highest in the past eight months. The surge in retail-sales numbers in the past two months was due primarily to higher gasoline prices as crude oil prices jumped sharply since the start of the Iran war in early March. Excluding spending at gas stations, retail sales were still up 3.7% year-over-year, which is an indication that consumers are hanging in there for now. Nonstore retailers (11.1%) continued to climb by double-digits, while sales at food and drinking places – an indicator used by economists to measure household finances – edged up a healthy 2.7% from the same month last year. Consumers did cut back on some goods, including spending at furniture stores (-3.6%), car dealerships (-1.4%), and department stores (-1.2%). With prices in categories other than gasoline projected to increase in the near term, consumer resilience will be tested again in the coming months.   

Small business optimism stabilizes but remains below its long-term average: The NFIB Small Business Optimism Index rose 0.1 points (pts) to 95.9 in April but continued to stay under the 52-year average of 98.0 for the second straight month. Meanwhile, the Uncertainty Index fell 4 pts from March to 88 but remained well above its historical average of 68, as inflation pressures continue to post challenges for not only consumers but businesses as well. The net percent of business owners expecting better business conditions fell again by 7 pts to a net 4%, reaching the lowest level since October 2024. As small businesses continued to experience supply chain disruptions due partly to the war, more of them raised their prices. Actual price change was up again last month, with the net percent of owners raising average selling prices rose 5 pts from March, while the net percent of those who planned to adjust their selling price in the next three months increased 3 pts last month, an indication that prices will further increase in the months ahead. With inflation likely to remain sticky in the near term, mortgage rates could stay elevated in the remaining second quarter and the upcoming quarter.

Foreclosure climbs annually as affordability challenges affect homeowners: U.S. foreclosure filings decreased on a month-over-month basis but increased from 12 months ago in April, as the housing market continues its gradual normalization trend while higher housing costs remain an issue for some homeowners. According to ATTOM, there were a total of 42,430 U.S. properties with foreclosure filings last month, a decline of 8% from March but a surge of 18% from April 2025. At the national level, one in every 3,388 housing units had a foreclosure filing last month, while California had one foreclosure in every 3,314 homes. The Golden State had the 15^h highest foreclosure rates among all states, with Delaware (1 in 1,739) remaining on top of the chart. Lake, Madera, Kern, and Shasta were the counties in California that had the highest foreclosure rate in April. While foreclosure activity last month was above its year-ago level, overall filings remain significantly below pre-pandemic levels as strong homeowner equity and relatively tight underwriting standards continue to limit widespread foreclosure pressure.

Homebuilder confidence bounces back from recent low: U.S. homebuilder sentiment improved in May, despite rising mortgage rates and lingering economic concerns continued to tamper builders’ optimism, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). The latest HMI posted a three-point gain from April to reach 37 in May but continued to stay below the break-even point of 50 for the 25^th straight month. The survey’s measure of sales expectation in the next six months increased three points from the prior month as well, while traffic of prospective buyers also climbed three points month-over-month. The temporary two-week ceasefire in the Middle East, followed by the ongoing negotiation effort, and recent improvement in the job growth might have brightened the market outlook for developers, at least temporarily. Higher fuel prices, however, will continue to put upward pressure on building material costs and elevate near-term economic risks for builders. With costs rising, builders are cutting back on incentives with the share of builders reporting cutting prices dipping to 32% from 36% in April. The average price reduction, on the other hand, edged up to 6% from 5% in the prior month. As mortgage rates remain elevated, the market for newly built homes will continue to face affordability challenges in the coming months. 

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