Beyond the First Quarter: Shaping the 2026 Economic Landscape
Presented by Steven McDonald, CVA, Principal / Chief Economist, Raftelis
Steven McDonald, Chief Economist at Raftelis, brought 35 years of cross-industry expertise spanning utilities, tourism, logistics, and fiscal policy to his analysis of the Q1 2026 economic landscape. He contextualized current trends by tracing economic shifts since the “Great Depression” (2001-2009) highlighting various key points.
There are three economic “elephants in the room”. The first being economic expansion in relation to political parties in power. Statistically this economic expansion is equal at the time being. Over the last 70 years of economic expansion, 51% has been under Democratic presidents and 49% under Republicans. Half of the last 12 complete economic cycles spanned across both party administrations, and the current expansion is expected to push republican expansion over 50%. Steven highlighted economic growth is not a zero-sum game; one party does not need to lose for the other to create economic progress.
The second “elephant in the room” Steven discussed is U.S. manufacturing employment. Since World War II, industrialization has moved from production to services. He emphasized that modern manufacturing should not carry the weight of our current economic challenges, nor should political parties offer it as a catch-all solution for weak economic output. Ultimately, manufacturing should not be viewed as the economy’s savior.
The third “elephant in the room” is U.S. national debt which is now equal to 121% of annual income (GDP). While that percentage has dropped from its pandemic peak, it remains 120% higher than post-World War II levels. Steven pointed out that current tax structures are not balanced with public needs and wants, ultimately connecting fiscal challenges, the “elephants in the room”, back to our current economic growth. These periods of economic growth have been increasing since 1982 with some growth attributed to success of the technology sector, which has helped prevent some of the booms and busts that were seen pre-1982 economy. Looking at the current economic expansion, Stephen suggests that the end of our current expansion will ultimately force the U.S. industry to clean itself as it approaches a recession period.
Turning to the economic outlook, Steven pointed to strong signs of recovery, noting that consumer prices have moderated effectively while GDP growth, disposable income and personal consumption all continue to climb. Furthermore, the economy has recovered 6.2 million payroll jobs since the pandemic-era lockdowns, with job growth positively trending upward in 2026.
On the downside, strategic chaos has become commonplace turning risk into uncertainty as both state and non-state weaponize instability for geopolitical gain. Furthermore, national debt and revolving consumer credit have both increased over the past year. Simultaneously, the current Consumer Prices and Employment (CPI) has also erased 20 months of economic progress while employment growth slows, a combination that Steven warns signals a less effective Federal Reserve.
In summary, consumer credit debt has drastically increased. U.S. consumer sentiment has plummeted and remains 40% lower than it was at comparable points during previous expansions. Steven suggested the industry should consider the economy a system and that not everything moves in perfect unison. Potential economic downturns should always be seen as a possibility, but not in a way that passes on opportunities. Also, politics should focus on actual policy as 67% of the GDP is consumption. If consumers act on their pessimism and job growth stalls, there is a possibility of recession and even stagflation.
What is the impact on the Water and Wastewater Industry? Steven suggests that industry is resistant to economic depression. Utilities are essential and the need for them will not go away. Aging infrastructure requires continued investment but is important to note that limited moderation of price pressures can negatively impact the industry. Maintaining rates will be a constant challenge in terms of affordability and more transparency, and cost efficiency will be necessary to protect business. Regionalization will also be necessary for more effective operations moving forward if the industry wants to maintain a strong position in the economy.