Economist unveils where 'green shoots' are unfolding in economy

Key Concepts

• Middle America as an Emerging Market: The idea that economic growth and opportunity are increasingly concentrated in the US heartland.
• Onshoring/Reshoring: The return of manufacturing and business operations to the United States.
• Capex Cycle: A period of increased capital expenditure by businesses, driving economic growth.
• Affordability Crisis: Challenges faced by individuals and families in affording essential goods and services, particularly housing.
• Green Shoots: Early signs of economic recovery or growth.
• Basis Points: A unit of measurement used in finance to describe percentage changes in interest rates (100 basis points = 1%).
• FDI (Foreign Direct Investment): Investment made by a company or entity based in one country into a company or entity based in another country.
• Secular Growth: Long-term, sustainable economic growth.

Economic Outlook: 2026 – The Year of Middle America

This discussion centers on the economic outlook for the United States, with a particular focus on the potential for growth in “Middle America” and a surprisingly optimistic forecast for 2026. Nancy Lazar, Piper Sandler Chief Global Economist, presents a counter-narrative to prevailing concerns about economic slowdown and affordability, arguing that the US economy is poised for a healthier trajectory than currently anticipated.

The Federal Reserve & Inflation (2020-Present)

Lazar begins by contextualizing the current economic situation, tracing it back to the Federal Reserve’s aggressive easing of monetary policy in 2020, coupled with expansive fiscal policy. This, she argues, “pushed price levels up egregiously across-the-board.” While acknowledging that inflation has slowed – citing decreasing prices in sectors like travel (tails, airlines) and automobiles – she emphasizes that price levels remain high. Her key takeaway is the importance of “being patient” and avoiding overreaction to short-term economic data. She believes the economy will ultimately prove healthier than expected, potentially negating the need for significant interest rate cuts.

A Shift Towards Shared Prosperity

A central argument is that economic growth will become more broadly shared, moving away from the current situation where the top 20% of earners drive 80% of consumption. Lazar points to increased opportunism among small businesses starting in mid-2025, driven by lower interest rates (a 175 basis point cut already implemented) and supportive policies from the new administration. Specifically, she highlights the importance of deregulation – “not talked about enough” – and the upcoming tax refunds, which will disproportionately benefit middle-income consumers. She envisions a “less bifurcated economy” and a “healthier economy” as the result.

Ten Takeaways for 2026

Lazar outlines ten key factors supporting her optimistic outlook for 2026:

1. Middle America Focus: A shift in economic activity towards the US heartland.
2. Tech/Capex Cycle: Continued investment in technology and capital expenditures.
3. Factories & Building: Increased construction and manufacturing activity.
4. Onshoring: The return of businesses and manufacturing to the US.
5. Fed Easing (But Less Needed): Interest rate cuts, though potentially less drastic than anticipated.
6. Housing – Green Shoots: Early signs of recovery in the housing market.
7. Tax Refunds: Stimulus from upcoming tax refunds benefiting middle-income earners.
8. Business Confidence: Positive sentiment among businesses.
9. Capex Expensing: The new policy allowing for full expensing of capital expenditures.
10. Innovation: Continued US leadership in technological innovation.

The Affordability Crisis & Housing Market

Lazar believes the affordability crisis has “actually peaked,” evidenced by “green shoots” in the housing market – including rising mortgage applications, state home sales, and pending home sales. She anticipates that as the labor market strengthens and incomes “reaccelerate” in 2026, affordability will improve further. She notes President Trump’s recent initiatives aimed at addressing housing affordability through Fannie Mae and Freddie Mac, leaning on homebuilders.

Onshoring & Global Competitiveness

The conversation highlights a trend of increasing onshoring to the US, with companies realizing the US is a more attractive place to do business after a decade of it being considered unfavorable. Foreign Direct Investment (FDI) from China has been negative for the past few years, despite media portrayals. Lazar asserts that America remains “exceptional” due to its innovation and capital spending-led economy, which drives productivity, profitability, and GDP growth. She emphasizes that the US is uniquely positioned for “secular growth” in this area, surpassing other countries like Germany, which are only now beginning to see similar capital expenditure cycles.

Data & Statistics

• Interest Rate Cuts: The Federal Reserve has already cut rates by 175 basis points.
• FDI from China: Negative for the last few years.
• Report Length: Nancy Lazar’s recent report was extensive, prompting a comment about its size (though the exact page count wasn’t specified).

Key Arguments & Perspectives

Lazar’s central argument is that the US economy is fundamentally stronger than many believe, and that 2026 will see a more broadly shared prosperity driven by factors like onshoring, tax cuts, and a resurgence in Middle America. She challenges the narrative of “American exceptionalism” being over, arguing that US innovation and capital spending continue to set it apart from other nations. Her perspective is grounded in a data-driven analysis and a call for patience, urging observers to avoid overreacting to short-term economic fluctuations.

Notable Quotes

• “I still think America is exceptional and that’s largely because of our innovation, our technology innovation.” – Nancy Lazar
• “You have to go back in history…the Fed eased way too aggressively as did fiscal policy in pushing price levels up egregiously across-the-board.” – Nancy Lazar
• “Less bifurcated economy, healthier economy is clearly the path for 2026.” – Nancy Lazar

Synthesis/Conclusion

The discussion paints a surprisingly optimistic picture of the US economic future, particularly for 2026. Lazar’s analysis suggests that a combination of policy changes, business investment, and underlying economic strengths will lead to broader prosperity, with Middle America playing a key role. Her emphasis on patience and a long-term perspective offers a counterpoint to the often-pessimistic narratives surrounding the current economic climate. The key takeaway is that the US economy is undergoing a structural shift that could lead to more sustainable and inclusive growth.