The U.S. and Iran appear to have reached a tentative deal to extend the ceasefire for another 60 days.

According to news sources Iran would have to remove all mines from the Strait of Hormuz within 30 days. In exchange the U.S. would gradually lift its naval blockade on Iranian ports which would allow Iran to sell more oil.

That would be an unambiguously positive event. Oil and gasoline prices have already fallen sharply. The stock market climbed to yet another record high level. The inflation rate would soon begin to decline.

Once inflation begins to subside long-term interest rates would begin to decline as would the 30-year mortgage rate. This good news depends crucially on reaching an agreement which we think will happen. It is in the interest of both sides to do so. The U.S. has its mid-term election coming up in November. Trump and the Republicans do not want the war to still be an issue during the summer months leading up to the election.

The Iranians need to sell more oil to rebuild their country and, potentially, restart their nuclear program.  Lots of issues must still be resolved, but a continuation of the cease fire is a significant step in the right direction.

GDP growth in the first quarter was trimmed by 0.4% to 1.6%.  The war that began on Feb. 28 undoubtedly took its toll on growth in that quarter.

Real disposable income has declined in each of the past three months and has fallen 1.1% in the past year as the run-up in inflation has reduced consumer purchasing power.

Middle- and upper-income consumers still seem willing to dip into their stock market gains and spend at a moderate 2.1% pace to maintain their lifestyle, but lower income consumers are struggling.  With real income now declining one wonders how much longer middle- and upper-income consumers are willing to ignore the drop in their purchasing power.

Mortgage rates remain around 6.5% which is preventing what appeared to be an incipient recovery in housing at the beginning of the year when mortgage rates dipped briefly to the 6.0% mark.  The rebound to 6.5% mortgage rates quickly snuffed out that hint of a rebound.

An extended cessation of the fighting in Iran would, at a minimum, reduce oil prices.  WTI crude oil has already declined more than 20% from a peak of $115 per barrel to $88.  Admittedly, prices would remain far above the $65 per barrel price that existed prior to the war, but a 20% drop would be significant.  Wholesale gasoline prices have fallen by a roughly comparable amount.

A 20% drop in energy prices in the next couple of months could reduce both the overall CPI inflation rate and the core rate to about 2.5% by the end of the year.

Such a slowdown in inflation should allow bond yields to fall from about 4.5% currently to perhaps 4.0% by year-end.

That would, in turn, reduce the 30-year mortgage rate from 6.5% or so currently to perhaps 6.0% by year-end.

Lower rates and reduced inflation would power the stock market to even higher prices.

It is not clear whether 2.5% GDP growth in the second half of this year, an unemployment rate that remains at 4.3% which is essentially its full employment threshold, and a 2.5% core CPI inflation rate would be enough to get the Fed to cut rates.  We suspect that it will not reduce rates between now and yearend, but there is a new Fed chair who is so inclined.  We should learn more about his intentions following his first FOMC meeting on June 16-17.

The point of all this is that the outlook going forward depends largely on the outcome of the war. An extension of the cease fire is an important ingredient. We have seen in the stock, bond, and oil markets the positive impact it would have on the economic outlook for the United States, and it would do the same thing for other countries around the globe.

From 1980 until his retirement in 2003, Stephen Slifer served as chief U.S. economist for Lehman Brothers in New York City, directing the firm’s U.S. economics group along with being responsible for forecasts and analysis of the U.S. economy. He has written two books on using economic indicators to forecast financial moves and previously served as a senior economist at the Board of Governors of the Federal Reserve in Washington, D.C. Slifer can be reached at www.numbernomics.com.

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Kevin Warsh has begun his term as Fed chair. His predecessor, Jay Powell, frequently clashed with Trump regarding the appropriate level of interest rates. Trump argued that a “neutral” level for the funds rate was about 1.0%. The FOMC believed that the “neutral” rate was about 3.0%. Trump made it clear that his nominee for Fed chair would be expected to lower interest rates.

Will Warsh cave to pressure from Trump to lower rates even if they are unnecessary?  We do not think so. The economy today is stronger and the inflation rate much higher than it was in the spring when Warsh testified. We believe that on June 17 the Fed will lose its current easing bias and replace it with a bias toward tightening. Such action would reassure bond market participants that the Fed will not repeat its 2021-2022 mistake of waiting too long to raise interest rates.

The stock market continues to climb.  Investors initially got nervous about the war with Iran which triggered a long-awaited correction, but the market rebounded quickly and has set a series of record high levels in recent months.

GDP growth in the first quarter came in slightly higher than expected at 2.0%. Second quarter growth seems likely to exceed 3.0%.

Growth is being supported by consumer spending which continues to climb at a 2.1% pace even though consumer confidence is at a record low level.  Middle and upper income consumers are dipping into stock market gains to maintain their lifestyle.

At the same time the AI boom has caused the intellectual property component of investment spending to climb at a robust 10% pace.

AI is also boosting productivity growth which further bolsters GDP growth.  Between 2000 and the beginning of the 2020 recession productivity growth averaged 2.0%. In the past three years productivity has climbed at a 2.8% rate. As a result, our economic speed limit has climbed from 2.0% to about 3.0%.

Meanwhile, jobs are once again being created.  Payroll employment was essentially unchanged each month in 2025, but is now rising by about 75,000 per month. At the same time the unemployment rate is 4.3% which is its “full employment” level. Everybody who wants a job has one.

On the inflation front the war has boosted gasoline prices from $3.10 per gallon prior to its start to $4.50 per gallon.

The overall CPI index has surged as higher gas prices have boosted it to 3.8%.  The core rate is a different story. Prior to the war the core CPI was stuck at about 2.5%. It has since climbed to 2.7%. The recent runup in inflation has almost all been energy related.

With the stock market at a record high level, GDP growth at its potential pace, the labor market at full employment, and the core inflation rate slightly above target, what should the Fed do?

The Fed believes the funds rate is neutral when it is at 3.0% although many FOMC members think it could be higher. We agree and believe the funds rate is neutral when it is about 3.5%. The funds rate currently is 3.6%. Short rates are about where they should be.  Nobody other than Trump believes the neutral rate is 1.0%.

The Fed only has control over short-term interest rates. It cannot determine long-term rates which are driven primarily by inflation. The yield on the Treasury’s 10-year note has risen from 4.1% at the end of last year to 4.5% which reflects the near-term impact on inflation caused by the war and higher oil prices. Longer-term inflation expectations have been quite stable.

Ten-year inflation expectations, as measured by the difference between the nominal and inflation-adjusted rates on 10-year notes, is currently 2.4%.  It has been at roughly that same rate for the past four years.

So what should the Fed do?  At the next FOMC meeting on June 16-17 it is inconceivable that Kevin Warsh will push for a rate cut given the economic backdrop described above.  Whatever his view might be about the level of a “neutral” rate longer term, this is not the time for a rate cut.

But what about the bias? The Fed continues to have an easing bias even though at the last meeting three Fed officials objected. Since that time the inflation rate has continued to accelerate and the easing bias is sure to disappear.

The Fed could opt for an unbiased directive and cite uncertainty caused by the war on both the economy and inflation. But the Fed has a credibility problem. Inflation has been faster than the Fed’s 2.0% target for the past five years.

Furthermore, it made a huge policy error in 2020 by not tightening sooner than it did when the economy rebounded vigorously from the recession. To adopt a tightening bias would send a message that the Fed is serious about returning inflation to the 2.0% mark. With the market expecting a 0.25% rate hike by year-end, anything short of a tightening bias might send a message that the Fed is still not serious about fighting inflation which would likely push the yield on the 10-year note to or above the 5.0% mark.

From 1980 until his retirement in 2003, Stephen Slifer served as chief U.S. economist for Lehman Brothers in New York City, directing the firm’s U.S. economics group along with being responsible for forecasts and analysis of the U.S. economy. He has written two books on using economic indicators to forecast financial moves and previously served as a senior economist at the Board of Governors of the Federal Reserve in Washington, D.C. Slifer can be reached at www.numbernomics.com.

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Gartner surveyed 350 executives at billion-dollar companies already deploying AI agents, automation, and digital twins. Eighty percent cut headcount. Some by as much as 20%. The companies that cut the most showed nearly identical financial returns to the companies that cut the least. In several cases, the ones that cut less performed better.

That finding should make us uncomfortable, because most of us have sat in an all-hands where a CEO said some version of “AI isn’t here to replace you; it’s here to help you.” I’ve heard it dozens of times. I think most leaders believe it when they say it. But 80% of the companies actually deploying AI have already reduced their workforce, and the data say it didn’t improve their returns. Something between the intention and the execution is breaking down.

I’ve spent 15 years studying how organizations treat their people. There’s a pattern I’ve seen over and over: when the pressure to show returns builds, headcount becomes the easiest lever to pull. AI gives that decision a more palatable story. It sounds forward-thinking. It gives the CFO a slide showing headcount reduction as “efficiency gains” and lets leadership frame the cuts as progress. But Gartner’s own analyst drew a line worth paying attention to: workforce reductions create budget room, not return. Those are different things, and most organizations are treating them as the same.

What concerns me more is what happens after the cuts.

Companies are buying Claude subscriptions and dropping AI agents into workflows the way they used to drop Slack into a company and call it a “collaboration strategy.” No training plan. No change management. No real thought about how humans on the team are supposed to integrate a tool that changes the shape of their work overnight. The assumption seems to be that the technology is so good it’ll figure itself out.

It won’t.

Technology adoption has never been a technology problem. It’s a people problem. I’ve watched companies spend millions on engagement platforms and see zero movement because nobody trained the managers to use the data. The same thing is happening with AI right now, at scale. The tool is extraordinary. I use Claude every day, and it makes me faster, sharper, more precise. But I had to learn where it fits and where it doesn’t. I had to build a process around it. That took time, intention, and a willingness to change how I work. Most organizations are skipping that entirely and going straight to headcount reduction.

Gartner found that some companies that moved too fast were forced to rehire employees shortly after letting them go. Klarna cut 700 customer service roles, watched quality decline, and started hiring again. IBM automated large parts of HR and reversed course when the systems couldn’t handle judgment calls. The pattern is consistent enough to take seriously. Organizations are making permanent workforce decisions based on where AI is right now, while the technology is still shifting underneath them.

I think about this in the context of what I see every week in consulting. The companies that get the most out of their engagement data aren’t the ones with the best dashboards. They’re the ones where a manager sits down with a team and says, “Here’s what the numbers say. What do you think?” That conversation, where a person looks another person in the eye and asks a real question, is where change actually happens. AI can inform that moment. It can’t replace it.

The organizations that will get this right are the ones treating AI the way you’d treat any high-performing new hire. You onboard it. You train people to work alongside it. You redesign workflows so humans and the tool are each doing what they do best. You give it a change management plan, because that’s what any significant operational shift requires. The human connection to work still matters here, maybe more than ever, because the companies that lose that connection in the name of efficiency will feel it. Not immediately. But steadily.

The Gartner data is early. AI capabilities are advancing fast, and some of today’s conclusions may look different in two years. But right now, the evidence says cutting people isn’t producing better returns. And the organizations that invested in their people through this period of uncertainty will have something the others won’t: the institutional knowledge, the relationships, and the trust that no tool can rebuild from scratch.

Jaime Raul Zepeda is the executive vice president and principal consultant at Best Companies Group. Connect with him on LinkedIn or email him to learn more about how Best Companies Group can help you build a great workplace: jzepeda@bestcompaniesgroup.com.

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The economy is chugging along with GDP growth of about 2.0% despite a number of headwinds. The unemployment rate is 4.3%, so everybody who wants a job has one. On the surface, the economy is doing relatively well. But consumer confidence is at a record low level. How can that be? What can be done to boost consumer spirits?

Consumer confidence by any measure is at a record low level.

But at the same time, consumers continue to spend quite freely. Historically, that should not happen. When consumers get nervous, they typically cut back on spending. They make that old clunker last another year or two. No fancy overseas vacation. Eat out at a restaurant less often. Why isn’t that happening this time?

The answer is that we are creating an increasingly bifurcated economy as the income gap between upper and lower income families has widened dramatically. Those at the top have benefitted from the dramatic rise in both stock prices and the value of their home. The S&P 500 index has risen 25% in the past year to a record high level.

Home prices have risen 50% in the past five years.

If you happen to own your own home and have a stock portfolio, you are quite content. The 43% of American families making more than $100,000 annually appear to be using stock market gains to support their lifestyle and keep consumer spending climbing at a moderate pace.

But the other 57% of American families making less than $100,000 are concerned. They do not earn enough to purchase a median-priced house. They may have student loan and car payments to make. They have no money left over at the end of the month to buy stocks. They are struggling. The primary reason for their worry is that inflation has eroded their purchasing power, and that is unlikely to change. Tariffs will continue to be passed through to consumers. The war has boosted gas prices. And now AI may soon replace their job.

Consumer problems began when inflation accelerated in 2021 and 2022. It had been chugging along at about a 2.0% pace but suddenly surged to 9.0%. The Fed insisted that the increase was “temporary.” To an economist, a temporary increase is what happens to food prices if there is a drought, or to gasoline prices if a hurricane shutters refineries and curtails production in the Gulf of Mexico. Prices go up initially, but eventually fall to roughly where they started. That did not happen. Prices rose but never declined. They continued to climb, but at a slower pace.

The Fed wanted prices to rise 2.0% in each of the past seven years. Instead, the average increase in the CPI during that period was 3.9%, almost twice as fast as the Fed intended. And the impact is cumulative. Each year that inflation exceeds the 2.0% target, the actual price gets farther and farther above where it should be. Currently, prices for the items in the CPI basket of goods and services are 13% higher than they would have been if inflation had risen at a 2.0% pace. No wonder consumers are complaining.

For lower-income American families, the “excessive” price gains have been concentrated on necessities — rent, food, gas prices, automobile insurance and repairs. The “excessive” price gain for all items in the CPI is 13%. But prices for necessities have risen far more rapidly. The charts for specific items all look similar, but a couple of examples will suffice. One pound of ground beef seven years ago was $3.86. Today it is $6.70. Working through the math, today’s price is 54% higher than it would have been if prices had risen 2.0% annually. Coffee was $4.05. Today it is $9.60. Today’s price is 112% higher than it would have been with a 2.0% price gain annually. Other “excessive” price increases include gasoline +31%, car insurance +38%, car repairs +47%, rent +17%. Prices of necessities have risen far more rapidly than the prices of other items in the CPI index.

Unfortunately, lower-income families cannot avoid the pain. They need to pay the rent. They need to eat. They need to fill the car with gas, pay automobile insurance and do necessary repairs to get to work every day. Their lives are often filled with hard choices. Skip the rent payment in order to buy food so the kids can eat? Fill the car with gas or take the bus to work? No wonder consumer confidence is so low. Those who can least afford it are getting hit the hardest.

This does not mean the economy is in danger of falling into recession. The 43% of middle- and upper-income American families who are benefitting from the run-up in stock prices and the value of their home should continue to spend at a fast enough pace to keep overall consumer spending climbing at a moderate pace of about 1.2% this year. And the continuing adoption of AI should keep investment spending humming at a rapid 6.0% rate.

Having said that, it is not a good situation when 57% of American families are stretching their paycheck to cover monthly expenses, are unable to purchase a house and fear what the economy might look like a few years down the road.

Confidence, once lost, is hard to restore. In a recession, confidence slides, but when the recession ends, it will rebound. This is different.

The inflation surge that pushed prices sharply higher was the catalyst for the problems faced by so many American families today. It was caused when the Fed misread the economy. It strongly believed the run-up in inflation would be temporary and, as a result, it began to raise rates 18 months later than it should have, which allowed higher prices to become embedded in the economy. The Fed has since eliminated all of the surplus liquidity it created earlier. If it maintains its current 5% growth rate in the money supply, the inflation rate should slowly shrink toward the Fed’s desired 2.0% pace, but it may not get there until 2027. Meanwhile, the Fed will get a new chair, Kevin Marsh, next month, and he plans to substantially alter the way the Fed operates. Who knows what might happen to money growth then.

Another complicating factor is the surge in oil prices caused by the war. If oil prices remain around $100 per barrel for some time, those higher prices will eventually seep into a wide variety of goods that use oil as an input in the production process, such as plastics, synthetic fibers for clothing, asphalt for roads, roofing shingles and personal care and beauty products. In that case, the inflation rate will not shrink from its current 3.0% pace anytime soon.

The other source of angst for consumers is the scattershot way that fiscal policy has been carried out. Tariffs were imposed shortly after the administration took office last year. But the rates, the countries impacted and the goods to which they applied all changed with considerable frequency. Efforts to deport undocumented immigrants, reductions in the federal workforce and government shutdown disruptions have added to uncertainty. And now there is the war with Iran.

Nobody can predict with any degree of confidence what might happen next. All Americans are nervous, but especially those at the lower end of the income scale who are living paycheck to paycheck.

It is hard to see an end to the chaotic implementation of fiscal policy anytime soon. The current administration still has time remaining in office, and its approach to policymaking is unlikely to change significantly. Even if Congress shifts control, executive actions will likely continue to drive policy direction.

We would like to see Americans feel more confident about their future. But inflation will remain above target for some time, and uneven fiscal policy is likely to continue. Confidence should eventually rebound, but not anytime soon.

From 1980 until his retirement in 2003, Stephen Slifer served as chief U.S. economist for Lehman Brothers in New York City, directing the firm’s U.S. economics group along with being responsible for forecasts and analysis of the U.S. economy. He has written two books on using economic indicators to forecast financial moves and previously served as a senior economist at the Board of Governors of the Federal Reserve in Washington, D.C. Slifer can be reached at www.numbernomics.com.

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COVID did something to us that a decade of wellness programs never could. It forced us to look directly at our own mortality and ask, with unusual honesty: is this how I want to spend my time?

That question did not stay at the dinner table. It followed people into their offices, their Zoom calls, and their one-on-ones with managers who had no idea it was coming. The result is a workforce that is no longer content to simply be employed. They want to be growing.

And here is where most leaders get it exactly wrong.

When they sense dissatisfaction, they reach for salary. It is the default lever, the one that requires no vulnerability, no real conversation, and no self-examination as a leader. Throw money at it. Problem solved. Except it is not solved. It is postponed.

The research on this is not new, but it keeps getting ignored. Daniel Kahneman’s foundational work identified a threshold around $75,000 (roughly $115,000 in today’s dollars) beyond which additional income produces diminishing returns on life satisfaction. More recent studies push that number closer to $500,000. The specific figure matters less than the underlying truth: there is a ceiling. Money has a law of diminishing returns, and your compensation strategy almost certainly hit it before you realized it.

What does not have a ceiling is progress.

Behavioral science has consistently found that the feeling of making meaningful progress — on a skill, a project, a career or yourself — is one of the most powerful drivers of motivation and engagement that exists. Not comfort. Not perks. Not even recognition. Progress. And yet it is the thing that leaders talk about least and invest in most sporadically.

I was working with a client recently. Small organization, tight budget, and a high performer who was maxed out on their salary band and still unhappy. The manager could not figure it out. They had given everything the compensation structure allowed.

I asked the manager a simple question: what does this person want to get out of their time here?

Silence.

Not because they did not care. Because the question had genuinely never been asked. Not well enough. Not directly enough. Maybe not at all. The employee had been investing years in an organization that had never thought to ask what they wanted in return, beyond a paycheck.

That is not a compensation problem. That is a leadership problem.

Most companies spend enormous energy measuring employee satisfaction and tracking retention metrics. These are lagging indicators. They tell you what already happened. The leading indicators, the ones that actually predict whether someone will stay engaged and perform, are things like: do they feel they are growing? Do they have access to stretch opportunities? Are they being challenged at the edge of their current capabilities? Does their manager even know what they are trying to build in their career?

If you cannot answer those questions for your top five people right now, you have a gap worth closing.

You do not need a new HR system or a consulting engagement to start fixing this. You need 30 minutes and the willingness to ask better questions.

Block time with one of your top performers this week. Ask them: what keeps you here? What do you love about this organization? What do you wish were different? What skills are you trying to build right now, and are you finding any support for that here?

Those questions do two things simultaneously. They surface information you cannot afford to not have. And they send a signal that you cannot buy with a bonus: I see you. I want you to grow here. Your ambitions matter to this organization.

Some employees want stretch projects. Others want more visibility across the organization. Some want structured skill development. Some simply want to know there is a path forward. You will not know which until you ask. And when you do not ask, you default to salary negotiations and exit interviews.

The companies that are winning on culture and retention right now are not necessarily the ones with the biggest compensation packages. They are the ones where leaders pay close enough attention to know what their people are actually reaching for and then find ways to put it within reach.

That is not a budget line item. It is a leadership practice. And it starts with a single conversation you probably should have had months ago.

Jaime Raul Zepeda is the executive vice president at Best Companies Group, where he helps organizations build cultures that drive performance and retention. He has spent his career at the intersection of people strategy, revenue growth, and workplace experience at companies including Great Places to Work and LinkedIn. Want to connect? Find him on LinkedIn here: https://www.linkedin.com/in/jaimezepeda/

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Early this month President Trump said that “a whole civilization will die tomorrow” if Iran failed to meet his deadline to reopen the Strait of Hormuz. A day later he announced a 14-day ceasefire. Huh? What does he really want? War? Or peace?

While those two statements may seem confusing, to us they are simply Trump being Trump. It is his negotiating style. Keep people off balance. Be unpredictable. In this particular case we believe that he truly wants the war to end. Our reason has nothing to do with the war itself. It is based on the fact that the midterm elections are seven months away with a lot of campaigning that must take place in the interim.

Republican candidates will have a hard time convincing voters to reelect them if the fighting continues and gas prices remain above $4 per gallon. The cease fire may hold, but it will likely be a rocky road to peace. There will be regular skirmishes along the way and the rhetoric will be as acerbic as always. Nevertheless, we believe that the end is in sight.

It would appear that stock market investors agree with us. After plunging by 10% the S&P 500 has rebounded sharply and is currently 1.4% below the record high level set in mid-January. Given the volatility in recent weeks it feels like the stock market should be down by 10% or more. It isn’t. In fact, it is one good day away from a record high level. How can that be? We think it is largely because of the resilience of the U.S. economy.

For example, fourth quarter GDP growth was reported to be a meager 0.4%. But the six-week government shutdown that occurred in that quarter snarled air traffic, closed national parks, dampened tourism, furloughed thousands of federal employees and forced others to work without pay.

The Bureau of Economic Analysis said that the shutdown reduced GDP growth in that quarter by 1.2%. In other words, if the shutdown had not occurred the BEA suggests that GDP growth would have been 1.6%.

Then there is an alternative measure of economic activity in any given quarter known as “gross domestic income” or GDI. In theory, GDP and GDI should be identical because one measures the economy from the production side, the other from the income side. But they never are the same because they are derived from different sources.

GDI rose a solid 2.6% in the fourth quarter. The bottom line is that the government shutdown sharply reduced GDP growth in the fourth quarter and had it not occurred growth both GDP and GDP would probably have been in a range between 1.5-2.0%. Not great, but certainly not the near 0% growth that was reported.

Looking ahead to the first quarter we estimate GDP growth of 2.0%. The consensus appears to be roughly comparable at 1.8%. In either case, growth appears to have been moderate. But given everything that the economy has gone through, we find that growth rate impressive. Think about it. Businesses are still figuring out ways to adapt to the tariffs Trump imposed last year.

They are modifying their supply chains. Three-hundred-fifty thousand federal government workers were laid off last year and have had to seek jobs in the private sector. The federal government shut down for six weeks. The U.S. and Israel began a war with Iran in late February and oil prices have surged to $115 per barrel.

In ordinary times that combination of events should have caused consumers to sharply curtail spending and businesses to halt all new investment and lay off tens of thousands of workers. But that hasn’t happened. Instead, the economy still seems to be chugging along at a 1.5-2.0% pace despite these headwinds.

In the labor market payroll employment has slowed but mass layoffs have not occurred. At the same time fewer people need jobs because the labor force has stopped growing. As a result, the unemployment rate is 4.3% which basically means that everybody who wants a job still has one. In the fall the Fed cut rates twice because it feared the labor market would soften quickly. So where is the weakness? Once again, the economy is holding together nicely and defying the pessimists.

Could all those bad things be just over the horizon and clobber growth in the spring and summer months? Sure? But that is not our call. We believe the worst is over. If the cease fire generally holds together with only a few hiccoughs along the way, consumer and business sentiment should rise.

From 1980 until his retirement in 2003, Stephen Slifer served as chief U.S. economist for Lehman Brothers in New York City, directing the firm’s U.S. economics group along with being responsible for forecasts and analysis of the U.S. economy. He has written two books on using economic indicators to forecast financial moves and previously served as a senior economist at the Board of Governors of the Federal Reserve in Washington, D.C. Slifer can be reached at www.numbernomics.com.

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A month into the fighting, it is hard to see how the war can end soon despite Trump’s assurances that it is almost over. Iran’s missile arsenal has undoubtedly shrunk, but it is not depleted. Iran still poses enough of a threat to keep the Strait of Hormuz effectively closed and the country still inflicts significant damage to most of its Gulf neighbors.

Economists and market participants keep searching for signs that a near-term end is in sight, but they are becoming increasingly frustrated. Whenever the stock market is poised to collapse, Trump says something positive, triggering a significan rebound. A day or two later, when there is still no progress on ending the war either militarily or via negotiations, the downslide resumes.

This optimism-pessimism flip-flop has created considerable volatility in the stock, bond and oil markets. Market movements are driven almost entirely by headlines about the war or oil. The underlying economy is irrelevant for now.

Everybody needs to know what’s next and that is largely a guessing game which nobody can predict with any level of confidence.

The S&P 500 index has fallen about 8% from its peak, which is still relatively modest. But it feels like it has declined at least twice as much because of the volatility.

The VIX volatility index has risen sharply since the war broke out, but it is not nearly as high as it was a year ago when widespread tariffs were imposed.

The war has had its most significant impact on oil prices. At the end of last year, West Texas Intermediate crude was about $57 per barrel. Today, it is 70% higher at $97.

That has boosted gasoline prices up 40%, from $2.81 per gallon to $3.96. That matters as consumers are spending more to fill the car with gas, leaving less money to spend on everything else.

The yield on the 10-year Treasury note has climbed from 4.0% at the end of last year to 4.4%.

The rise in the 10-year yield has boosted 30-year mortgage rates from 6.0% a month ago to 6.4%. The housing market had been showing signs of an incipient rebound in recent months as affordability improved. But 6.4% mortgage rates may well short-circuit the recovery.

Clearly, higher oil prices, higher bond and mortgage rates, and a drop in stock valuations will weaken GDP growth and boost inflation in the near term, but what happens next? Most economists and market participants cannot see a near-term end to the war, but what if President Trump declares victory and ends the war tomorrow?  That would certainly help the near-term outlook for all markets, but ending the war prematurely would most likely  lead to another round of hostilities at some point down the road.

However, ending the war prematurely could lead to renewed hostilities later.

For what it’s worth, traders expect West Texas Intermediate oil to fall from $97 per barrel today to $78 by year-end. That is a significant drop but still well above the $57 price that existed at the end of last year.

A drop of that magnitude should keep the inflation rate and bond yields fairly steady. Mortgage rates may return to the 6% mark. Against this background the Fed will probably hold the funds rate at its current level of 3.6% through the end of the year (despite a new chairman).

At the end of last year, we expected vibrant 2.9% growth for 2026. Given all of the above we may reduce tha to 2.2%, which is still acceptable, but not nearly as robust as it might have been in the absence of war.

And the inflation rate should remain at about the 3% mark rather than dipping to 2.7% as we anticipated at the end of last year.

But it is hard to have confidence in any forecast.  Look what has happened in the first three months of the year? At this point any forecast — including ours — is nothing more than a guess dependent upon the degree of optimism or pessimism about the war.  It is easy to come up with a very gloomy outlook, but Trump can produce surprises.

From 1980 until his retirement in 2003, Stephen Slifer served as chief U.S. economist for Lehman Brothers in New York City, directing the firm’s U.S. economics group along with being responsible for forecasts and analysis of the U.S. economy. He has written two books on using economic indicators to forecast financial moves and previously served as a senior economist at the Board of Governors of the Federal Reserve in Washington, D.C. Slifer can be reached at www.numbernomics.com.

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About half of CEOs report significant time savings from AI. Workers using the same tools? Two-thirds reported minimal or no time savings.¹

That gap tells us everything.

It’s not the technology

AI can work. The evidence is clear. Companies that invest in training alongside implementation see real gains. Organizations that align AI with existing workflows rather than disrupting them get actual productivity improvements.

The technology isn’t the variable. The implementation is.

Here’s what’s happening instead: Nearly 60% of workers say learning to use AI tools takes longer than doing the task the old way. Only 25% receive formal training from their employers. And 41% have encountered AI output that required nearly two hours to fix.

We’re deploying tools without building capability. We’re measuring adoption instead of outcomes. We’re creating the conditions for failure and then wondering why people are frustrated.

The hidden equation

When workers do save time with AI, something interesting happens. They voluntarily take on more tasks. More multitasking. More task-switching. The research shows this decreases productivity, but it’s invisible on the dashboard that tracks “AI adoption rates.”

Time saved doesn’t create space. It creates expectation.

The question isn’t whether AI can make us more efficient. The question is: what are we choosing to do with efficiency when we find it?

The cost of speed

More than half of American workers now report feeling lonely at work.²

This isn’t unrelated to our technology choices. As we optimize individual tasks with AI, we’re systematically replacing the informal moments that build connection. The quick conversation that clarifies context. The collaborative problem-solving that creates shared understanding. The casual exchange that builds trust.

We’re trading these for speed.

Lonely workers miss more workdays. They’re twice as likely to leave. And workers who feel understood by their manager are more than twice as likely to report high vitality at work.

Connection isn’t a nice-to-have. It’s infrastructure. And we’re choosing to dismantle it in the name of efficiency.

The pattern that works

The companies succeeding with AI aren’t doing anything magical. They’re making three straightforward choices.

They treat training as essential, not optional. They design AI to enhance human judgment rather than replace it. And they actively work to maintain connection as they reshape how work happens.

These aren’t technical challenges. They’re choices about what matters.

AI worked best when it helped humans work better, when people were adequately trained and technology aligned with existing processes. This isn’t a surprising finding. It’s what we’d expect if we thought about people first and technology second.

What we’re choosing

Every AI implementation is a choice about what kind of workplace we’re building.

We can choose tools that isolate people in the name of efficiency. Or we can choose thoughtful rollouts that build capability while maintaining the human connections that make work sustainable.

We can choose to measure adoption rates. Or we can choose to measure whether people are actually better off.

We can choose to optimize for speed on dashboards. Or we can choose to optimize for the conditions that let people do their best work.

The technology will do what we design it to do. The question is whether we’re willing to design for the outcomes that actually matter.

AI can make work better. But only if we choose to implement it in ways that serve people, not just metrics. Only if we invest in training as much as we invest in tools. Only if we remember that productivity without connection isn’t sustainable.

The loneliness crisis in America isn’t inevitable. It’s a choice we’re making, one implementation at a time.

We can make a different choice.

Organizations that want to make the right choice about AI and the future of work should hold themselves accountable to a higher standard. The Best Places to Work in South Carolina program, now accepting registrations, recognizes employers that build workplaces grounded in trust, connection, and thoughtful leadership, not just efficiency metrics. If you believe technology should strengthen your culture rather than weaken it, this is an opportunity to measure what truly matters and stand alongside other South Carolina employers committed to doing it right. Sign up here today.

Jaime Raul Zepeda is the executive vice president and principal consultant at Best Companies Group, which helps organizations build high-performing and highly engaged employees. Best Companies Group has helped over 10,000 companies understand and improve their workplace using data-driven strategies. Contact him at jzepeda@bestcompaniesgroup.com or connect on his LinkedIn page.

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Data released in the past several weeks have not only beaten expectations, they have crushed them. For now it is hard to dispute the notion that the economy is on a roll. The trade deficit is shrinking rapidly and is contributing significantly to faster-than-expected GDP growth.

Productivity is surging thanks to AI. The acceleration in productivity also has been contributing to faster GDP growth and will continue to do so well into the future. As a result, our economic speed limit known as potential growth has apparently climbed from 2.0% to around 3.0%. Faster growth in productivity is also reducing labor costs which makes it likely that going forward the inflation rate is going to resume its slowdown and begin to approach the Fed’s 2.0% target.

Could it be that the U.S. economy has entered a dream cycle? We think so.

Two days before Christmas we learned that the long-delayed GDP report for the third quarter came in at 4.3%, which was a full percentage faster than the economic gurus had anticipated.

Many economists suggested that the growth surge was temporary, probably distorted by the prolonged government shutdown, and fourth quarter GDP growth will almost certainly be slower. Don’t be so sure of that.

The trade deficit for October narrowed by nearly $19 billion to $29.4 billion. That follows additional narrowing in August and September. That is the narrowest trade deficit since June 2009! If the trade deficit were to stay at its current level in November and December the trade component of GDP would add nearly 2.0% to fourth quarter GDP growth.

The highly regarded Atlanta GDP Nowcast pegs fourth quarter growth at an eye-popping 5.1%. We are not quite as high as that but still anticipate fourth quarter growth of 4.3%. Keep in mind that follows GDP growth in the second quarter of 3.8%, 4.3% in the third quarter, and now perhaps 4.3% growth in the fourth quarter. The notion that the current pace of economic growth cannot be sustained without more job creation has been snuffed.

The only way this can happen is if our workers have become more productive. And, voila, that is happening.

This past week we learned that productivity grew by a stunning 4.9% in the third quarter which follows impressive 4.1% growth in the second quarter. The 4.9% growth rate consisted of a 5.4% surge in output combined with a 0.5% increase in employee hours worked. In other words the economy kept roaring along without any significant job creation. And guess what? Productivity is going to register yet another growth rate of similar size in the fourth quarter. If fourth quarter GDP growth turns out to be 4.3% we now know that hours worked rose 0.5% in that quarter. Doing the subtraction implies an increase in fourth quarter productivity growth of 3.8% and productivity growth for the year of 2.6%.

To put that in context, in the past 20 years productivity has risen on average 1.2%. Its growth recently has been double that rate. As a result, the potential GDP growth rate for the U.S. appears to have accelerated from 2.0% to about 3.0%. Economists estimate potential growth by adding two numbers — the growth rate of the labor force to the growth rate for productivity. That is because firms can boost growth only by adding more workers or making their current employees more productive. Until recently those growth rates were 0.8% for the labor force and 1.2% for productivity or 2.0% for potential growth. Estimates of potential growth have been steady at about 2.0% for a decade. Until now.

The growth rate for the labor force may slip in 2026 as slower birth rates and reduced immigration take a toll. We suggest it will be about 0.5%. If productivity continues to climb at its current 2.5% pace, then by adding those two numbers we suggest potential growth is in the process of climbing to the 3.0% mark. Perhaps because estimates of potential growth have been stuck at 2.0% for so long many economists are reluctant to conclude that it could be faster.

The last time potential growth was significantly faster was in the last half of the 1990s. In fact, potential growth was in excess of 3.0% for six consecutive years from 1996–2002. What happened then? The introduction of the internet. A monumental technological advancement boosted productivity growth and potential growth for years. The catalyst today is AI. Why can’t AI do the same thing?

If potential GDP growth is really 3.0% rather than 2.0%, it would mean that we will see GDP growth rates bouncing around the 3.0% mark in the quarters ahead rather than 2.0%. Faster GDP growth means more growth in income and faster growth in both corporate profits and the stock market. In fact, potential growth is often regarded as a proxy for growth in our standard of living.

At the same time the acceleration in productivity will have a positive impact on the inflation rate because it will lower unit labor costs. Most economists keep a close eye on average hourly earnings which in the past year have risen 3.8%. Because that is faster than the Fed’s 2.0% targeted inflation rate they conclude that labor costs will prevent the inflation rate from slowing. But what economists should look at is something called unit labor costs which is labor costs adjusted for inflation. If nominal wages are rising 3.0% and productivity growth is 0.0%, then unit labor costs have risen 3.0% and firms would almost certainly be inclined to raise prices which would boost the inflation rate.

But what if nominal wages are rising 3.0% and productivity is growing by 2.5%? In that case unit labor costs have risen by the difference between the two rates or by 0.5%. Business owners would have no incentive to raise prices in that situation. In fact growth in unit labor costs of 0.5% could well lead to an inflation rate below the Fed’s targeted 2.0% pace.

We learned recently that unit labor costs actually declined slightly in the second and third quarters and could do the same thing in the fourth quarter. Everybody is all worried about the inflation rate accelerating. As long as unit labor costs continue to behave, the surprise could be that the inflation rate actually slows in 2026 and begins to approach the Fed’s 2.0% target.

Most economists continue to believe that the reduced pace of jobs growth implies the economy is weakening and they remain concerned. But jobs growth has been anemic since April. That has occurred as GDP growth roared along in the second and third quarters and is likely to continue at a steamy pace in the fourth quarter. Something is different. AI has changed the game. Growth going forward is going to be faster than expected. At the same time as productivity offsets most or all of the rise in wages, unit labor costs should decline, and the inflation rate should slow.

That is not the scenario that is on anybody’s radar at the moment. We expect positive surprises on both fronts in the months ahead.

From 1980 until 2003, when he retired, Stephen Slifer served as chief U.S. economist for Lehman Brothers in New York City, directing the firm’s U.S. economics group along with being responsible for forecasts and analysis of the U.S. economy. He has written two books on using economic indicators to forecast financial moves and previously served as a senior economist at the Board of Governors of the Federal Reserve in Washington, D.C. Slifer can be reached at www.numbernomics.com.

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In the early 2000s, I embarked on a journey to France for my master’s in Automated Manufacturing. As a mechanical engineer, I always felt something was missing for me and taking in-depth courses in manufacturing was what I needed.

Needless to say, my passion for manufacturing persists, 20+ years later, but I feel like we —as an engineering community — are still failing to demolish that wall between design and manufacturing, and at times even adding a totally different dimension with finance and other departments.

I still remember, or at least what my memory might have built, from that Boothroyd DFMA book I studied, where it depicted a long brick wall between design and manufacturing/assembly, and highlighted the need to dismantle that wall. It is a concept that I loved as it made sense, felt logical and I still recall thinking how everyone should implement it.

Obviously, I was naïve.

You see companies preach methods, efficiencies and procedures, and then they make the opposite decision. You see major engineering companies building design centers and headquarters, thousands of miles away from their manufacturing operations. Logically, you do not need as many design centers as manufacturing ones, so it makes sense in certain conditions. It can be diversification, it can be to be closer to certain ports, it can be at times geopolitical, but — unfortunately — it can also be because the CEO wants to live there, or because of other mundane reasons.

The impracticality of having a headquarters so far away from engineering/manufacturing has prevailed more in the last decades. You can see this very clearly in what happened at Boeing. While many CEOs decided to work from distant cities, the current CEO’s decision to work from Seattle, close to the factory floors, and to be in contact with the day-to-day operations is viewed positively. There is still a long way to get back those plane deliveries, but the different moves executed seem to be in the right direction to restore Boeing to what it was or to what it can be.

You see, most of the measures that were enacted were painful, but they were honestly informed by the factory floor versus reading from a spreadsheet.

So what is the lesson, and what motivates me to write this?

Here it goes. I am a bit tired by the perception of South Carolina being a build-to-print state. We have a premium educational landscape that is so well woven and connected between universities and technical colleges. We have decentralized industrial hubs that exist in all parts of our state, whether the Upstate, the Lowcountry or the Midlands. We have an economic team that is doing amazing work to attract companies to bring their manufacturing abilities to our state with great support programs. We offer a lot already and have a lot more. The growth of different domains from aerospace to automotive and defense is making an impact.

The growth of manufacturing, and future factories that we have been spearheading, will need S.C. to move beyond manufacturing and start targeting design and innovation hubs to create those future manufacturing advancements and technologies. We equally need to consider a future where the growth is not based on the cycles of onshoring, reshoring and offshoring, where an internal catalyst of growth and innovation comes from within. When we unlock this cycle, and innovation comes from within, this creates a new economy that propels South Carolina on all fronts.

If you have ever spoken with me, you know that my passion is rural manufacturing and creating a network between mom-and-pop shops all the way to the BMWs and the Boeings. I believe that manufacturing is the best approach to create wealth, stability and steady income. We need that innovation cycle to help that flourish, and we need to have a more holistic approach to attracting companies down the road.

If I had been part of the Scout Motors decision-making team, my headquarters would have been in Rock Hill. I would have reduced the distance between design and manufacturing by half. I would have kept the same distance to an international airport. I would have committed to support the S.C. innovation cycle.

More importantly, I would have required all my designers to spend a day on the factory floor (something not possible with the current distance). I would have asked them to understand the impact of their decisions on the quality of what is being produced, and I would have shown the world that Boothroyd was right about breaking that wall between design and manufacturing.

Ramy Harik, a Fulbright Alumnus, is the director of the Clemson Composites Center and a professor of Automotive Engineering at Clemson University. Harik holds degrees in Mechanical Engineering (B.S./M.S.), Automated Manufacturing (M.S.), and Industrial/Mechanical Engineering (Ph.D.). His teaching focuses on manufacturing, smart manufacturing and composites manufacturing.

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