Three tools can be used to make an informed guess about the future of the American economy: history, current economic data, and analysis of the facts on the ground.
The history is easily described. “Rising oil prices have usually preceded most recessions” ran the headline for a 2001 report by the Federal Reserve Bank of St Louis. The four recessions of 1973-75, 1980, 1981-82 and 1990-91 were preceded by an average increase in real energy prices of 17.5 per cent. Add 2008 to that list and, if history is a guide, we are in for a recession. But not certainly.
Betters on the Kalshi prediction market have raised their expectation of a recession this year from 22 per cent before the Middle East war to 31 per cent. That compares with Goldman Sachs’ increase of its estimated risk of recession from 20 to 25 per cent.
The economic data is less straightforward. The Bureau of Labor Statistics reported that the US economy added 147,000 jobs in June. That figure was eventually revised to a loss of 20,000. The bureau’s initial estimate that 584,000 jobs had been created last year was subsequently revised to 116,000.
The inflation data presents a somewhat different but equally unsettling problem. The American consumer price index seems to be stable at an annual increase of about 2.4 per cent. But the personal consumption expenditures price index, used by the Federal Reserve’s policy team to measure inflation, is rising at an annual rate of 3.1 per cent and headed higher, after five years during which the Fed’s 2 per cent inflation target has been exceeded.
Fortunately, the government is not the only source of data. The intentions of chief executives matter. In a survey by the Business Roundtable (our CBI), conducted during a period that included the first seven days of the war, the confidence of company bosses in the outlook for sales and “investment in new buildings, equipment, technology and more” proved to be above the historical average, with expected capital investment at its highest in four years.
This was further proof that companies investing billions in AI infrastructure are confident in the future of the economy, and mean to go on as they have started.
That investment in AI infrastructure is resulting in rising productivity, up 2.8 per cent in the past year, which means fewer jobs per unit of economic output (boo), but higher pay for those employed (cheers). Chief executives surveyed were divided about equally between those planning to hire, those planning to keep employment levels unchanged, and those who envisaged cutting jobs. Jamie Dimon, chief executive of JP Morgan Chase, plans to avoid lay offs by retraining existing employees rather than firing them, while not replacing retirees or staff departing voluntarily. New entrants to the labour force, including college grads, are having difficulty finding jobs.
Meanwhile, a study by economists at Stanford University finds that young workers (ages 22-25) in the occupations most exposed to AI software developers and customer service representatives are enduring substantial declines in employment.
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Which brings us to the question of oil prices, repeatedly spiking at about $100 a barrel. Before the war, the oil market was over-supplied and prices for Brent crude slid from $91 to $60 a barrel between April 2024 and December 2025.
The economic research team at Goldman Sachs is expecting prices to fall to between $71 and $76 a barrel by the year-end, the higher number assuming the Strait of Hormuz remains closed for a total of one month. A 60-day disruption raises the year-end forecast to $93.
So much for history and data. All depends on how long the war lasts, which is not easy to predict. Just ask Vladimir Putin: his five-day “special military operation” in Ukraine is in its fifth year. America’s war might not be the “forever war” that Donald Trump has promised his Maga supporters he would avoid, but its length is no longer entirely in the president’s control. He might decide to announce its end, but Iran will have something to say about that.
So far, the Iranians have succeeded in closing the Strait of Hormuz, inflicting fatalities on Americans, and sending politically sensitive petrol prices soaring by about 60 cents per gallon amid talk of “stagflation”. They have set a vessel aflame with a missile when the shipper accepted the president’s challenge to “show some guts” and traverse the strait. They have demonstrated an ability to inflict continued harm on Israel, Americans and their Sunni Arab Gulf neighbours, although the president says America is running out of targets. They have promised to spare those neighbours who shut down US bases, if they guarantee Iran’s sovereignty and security and pay compensation for war damage.
Meanwhile, Iran is using the Strait of Hormuz to ship oil in increasing amounts to a market it is closing to other suppliers. To increase world oil supply, Trump has removed sanctions on sales of Russian oil that is at sea. France and Italy are reported to have opened talks with Iran seeking to negotiate a deal to guarantee safe passage for their ships through the Strait of Hormuz. The Mullahs retain a tight grip on a population yearning to breathe free.
Trump’s claim of imminent victory, somehow defined, calls to mind songwriter and singer Gordon Lightfoot’s “I feel like I’m winnin’ when I’m losin’ again”.
Irwin Stelzer is a business adviser