MW Meet the unsinkable U.S. economy - oil prices are surging, Iran tensions are rising, but it won't crack
By Jeffry Bartash
Fallout from Iran war has been limited so far
The aircraft carrier known as the U.S. economy has suffered lots of blows in the past year, but it's not taking on any water.
High tariffs, stubborn inflation, government shutdowns, war with Iran, rising oil prices - nothing in the turbulent past year has poked a hole in a seemingly unsinkable U.S. economy.
The latest round of reports on the economy underscore its tenacity - and suggest it's likely to keep expanding.
Start with gross domestic product, the official measure of how fast the U.S. economy is growing. GDP rebounded in the first quarter and grew at a solid 2% annual rate after sputtering at the end of last year.
GDP is a backward-looking number, but the report also showed the economy picking up in February and March just as the conflict with Iran erupted.
More recent evidence also points to the resilience of the economy.
American manufacturers grew in April for the fourth month in a row, for instance, to mark the longest streak in four years.
Business spending has surged this year and shows no sign of abating as companies pile into the artificial-intelligence boom. Rising investment was the biggest source of economic growth in the first quarter.
A recent uptick in hiring, meanwhile, helped to raise consumer confidence in April to a four-month high. Americans told pollsters that jobs were a bit easier to find.
"There are tantalizing signs that businesses are starting to pull the trigger on new hires," said Scott Anderson, chief U.S. economist at BMO Capital Markets.
At the same time, layoffs and unemployment remain remarkably low. The number of people who applied for unemployment benefits in the last week of April sank to the lowest level since 1969.
If companies were really worried about the economy, analysts say, they would be cutting more jobs. They're not.
How come? Sales and customer demand are stable and high profit margins have given companies a financial cushion against tariffs and and inflation. They are not facing intense pressure to cut labor costs, the single biggest expense for most businesses.
Finally, the amount of money people are spending has stayed at levels sufficient to keep the economy expanding. Consumer spending is the main engine of the economy.
"Consumers are still spending," Jerome Powell said this week during his last press conference as chair of the Federal Reserve. "That's what the banks will tell you. That's what the credit-card companies will tell you. Right now we actually don't see much slowdown yet."
Trouble brewing
So the economy is doing just great, right? Not exactly, and pressure is mounting.
The high cost of oil (CL00) - now at $103 a barrel - is the chief threat. Prices are up 55% since the war with Iran begin.
If oil prices stay high, the costs will eventually spread beyond energy into other staples such as food, clothing and so forth. Ergo, higher inflation.
The rate of inflation, which had fallen to just 2.3% one year ago, could top 4% for the first time since 2023.
"You have to suppose more inflation is in the pipeline," said Dan North, senior economist at insurance specialist Allianz.
Americans are feeling the pain already. Gasoline prices have shot up to an average $4.40 a gallon from less than $3 a few months ago - and they might hit $5 by Memorial Day.
The higher cost of filling up at the pump has put more stress particularly on millions of middle- and lower-income earners who drive to work every day.
Larger tax refunds than usual eased the blow in the spring and propped up consumer spending, but only temporarily, some economists argue.
"The war's drag on consumer spending will begin to bite more in May," Oxford Economics said in a research paper.
The 'wealth' effect
The economy has kept growing through prior episodes of high inflation, however, and it could do so again. Chalk it up to the so-called wealth effect.
The stock market SPX DJIA has rebounded from a sharp slump in the early days of the Iran war and marched back to record highs, re-creating trillions of dollars in paper wealth for richer Americans. Typically when that happens, the rich spend more.
The strength of consumer spending in the past few years, in fact, has been driven by upper-income Americans. The top 20% of earners now account for a record 45% to 60% of all consumption, studies estimate.
Economists call it a K-shaped economy: A big segment of the public is driving U.S. growth, while an even larger share of Americans just try to get by.
"The stock market has done tremendously well over the last three years," North said. "That is where the support is coming from for all the consumption."
That's small comfort, of course, to the bigger slice of the public with more modest incomes and wealth. They've already been pummeled by years of high inflation.
Now prices are rising again, jobs are harder to find and wage growth is slowing.
Normally that's a recipe for trouble, but the aircraft carrier known as the U.S. economy shows little sign of taking on water.
"As long as the AI buildout remains so large, economic growth is likely to remain decent at a minimum and robust when other sectors chip in more substantially," Stephen Stanley, chief U.S. economist at Santander Capital Markets, wrote in a research note.
-Jeffry Bartash
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May 04, 2026 10:21 ET (14:21 GMT)
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