Impacts Already Shaping 2027 | The Decision Signal

The Observation

There is always something peculiar about the final months of an election year. Businesses are preparing budgets for the following year, retailers are stocking shelves for the holidays quickly approaching, executives are evaluating the impact of their big bets, and consumers are assessing their budgets for gifts and trips. In the same moment, millions of Americans are preparing to vote, with the outcome potentially changing the legislative priorities that businesses can potentially face for years to come.

Each of these activities follows its own calendar. Unfortunately, their economic consequences have a habit of arriving together.

Facts First

Three verifiable facts that help explain the business environment, including one from history that remains surprisingly relevant.

01The economy grew 3.4% and inflation is running at 3.6%.

The Bureau of Economic Analysis reported Thursday that real U.S. gross domestic product grew at a 3.4% annualized rate during the third quarter, compared with 2.2% in the second quarter. Consumer spending and investment contributed to the expansion.

Separately, September’s Personal Consumption Expenditures price index rose 3.6% from a year ago. Real consumer spending was essentially unchanged from August, despite a 0.5% increase in spending measured in current dollars.

Why it matters: Businesses are seeing genuine economic growth, but rising prices continue to complicate the relationship between revenue, purchasing power, and profitability. Higher sales in dollars do not necessarily mean customers are buying more.

Sources: Bureau of Economic Analysis, GDP, October 29; Personal Income and Outlays, October 29.

02Consumer confidence rose sharply and the Federal Reserve held interest rates.

The Conference Board’s Consumer Confidence Index increased from 84.2 in September to 91.7 in October. Its Expectations Index also improved, reaching 72.6, although it remained below the threshold of 80 that the organization associates with heightened recession risk.

On Wednesday, the Federal Reserve voted 10 to 2 to maintain its benchmark interest-rate range at 3.75% to 4.00%. The two dissenting members preferred a quarter-point increase.

Why it matters: Consumers are feeling somewhat better about the economy, but the cost of financing remains a constraint. For businesses considering expansion, acquisitions, or new capital commitments, stronger demand may not be accompanied by cheaper money.

Sources: The Conference Board, October 27; Federal Reserve, October 28.

03In 1939, President Roosevelt moved Thanksgiving to encourage Americans to spend more money.

When Thanksgiving was scheduled to fall on November 30, 1939, President Franklin D. Roosevelt worried that the shorter Christmas shopping season would hurt an economy still recovering from the Great Depression.

He moved the holiday forward by one week. The decision proved controversial enough that 32 states followed the president’s proclamation while 16 refused. For two years, Americans celebrated Thanksgiving on different dates.

Congress eventually intervened, establishing the fourth Thursday of November as the federal holiday in 1941.

Why it matters: The relationship between government decisions, the retail calendar, and economic activity is hardly new. Eighty-seven years later, the National Retail Federation is forecasting $1.013 trillion in holiday retail sales for November and December 2026. The seasonal calendar remains an important consideration for businesses managing inventory, labor, logistics, and cash flow.

Sources: National Archives, Congress Establishes Thanksgiving; National Retail Federation, October 15.

The Connection

Roosevelt’s decision in 1939 showcases how, some eighty-seven years later, the relationship between government decisions and consumer behavior remains just as consequential, albeit considerably more complicated.

Within this symbiotic relationship come the contradictions of today’s market landscape: a growing economy, yet struggling households; improved consumer confidence, yet a quiet Federal Reserve. These contradictions are in a constant state of tug-of-war over the investments that governments, businesses, and individuals are making for themselves and for those who depend on them.

What makes the final months of 2026 particularly consequential is the number of decisions converging at once, with companies preparing for a year whose economic and political conditions are still taking shape.

Friction / Traction Index

The Friction / Traction Index measures whether prevailing business conditions are creating greater room for companies to grow and execute, or placing additional constraints on their ability to do so.

The economy continues to expand, supported by consumer activity and business investment. Inflation, financing costs, and uneven operating conditions are limiting how consistently that expansion translates into profitable growth.

Recent market developments have also raised questions about the returns on major technology investments and the potential for geopolitical events to increase operating costs. Neither development eliminates the opportunities for growth, although both reinforce the importance of distinguishing economic activity from profitable performance.

The current evidence supports an assessment of continued opportunity alongside meaningful constraints. Whether those conditions improve will depend partly on the strength of holiday demand, the direction of inflation, and the investment decisions businesses carry into 2027.

Select any condition to compare its historical trend with the overall index.

Rolling 12 Weeks

August 10 to October 30, 2026

Methodology: Each condition is assessed on a scale from −2 to +2, with higher readings indicating more favorable business conditions. Half-point increments are permitted. The overall reading is the arithmetic average of the four conditions.

Demand

+0.5 · Improving

Third-quarter economic growth and improving consumer confidence provide evidence of continued demand. Consumer spending increased at a 3.8% annualized rate during the quarter, although inflation-adjusted spending was essentially unchanged in September. The holiday sales forecast offers an additional indication of expected resilience, with the important qualification that dollar growth may overstate changes in purchasing volume.

Evidence: Bureau of Economic Analysis, October 29; The Conference Board, October 27; National Retail Federation, October 15.

Capital

−0.5 · Selective

Business investment remains strong, particularly in technology, equipment, and AI-related infrastructure. Nonresidential fixed investment grew at a 12.7% annualized rate in the third quarter, demonstrating that companies continue to commit capital despite elevated borrowing costs.

Recent technology earnings have introduced greater scrutiny of the returns on large AI infrastructure investments. Alphabet’s 12.6% share-price decline on Thursday, followed by weakness in Amazon and Intel, suggests that investors are becoming less willing to treat expanding capital expenditures as evidence of future profitability. Strong investment continues to support economic growth, although the financial returns on those commitments remain uncertain.

The Federal Reserve’s decision to maintain its benchmark interest-rate range provides near-term continuity, although persistent inflation leaves the future cost of financing uncertain.

Evidence: Bureau of Economic Analysis, October 29; Federal Reserve, October 28; NBC News, October 29; Quartz, October 30; Axios, October 27.

Cost

−2.0 · Worsening

Annual PCE inflation increased to 3.6% in September, while core inflation, excluding food and energy, reached 3.1%. The continued rise in prices places pressure on household purchasing power and complicates margin management for businesses unable to recover higher costs through pricing or productivity improvements.

Geopolitical developments are adding to those pressures. Continued disruption around the Strait of Hormuz, including Friday’s reported tanker attack, has pushed oil prices higher, increasing the potential for additional costs in transportation, manufacturing, and consumer goods. The duration of those pressures remains uncertain.

Evidence: Bureau of Economic Analysis, October 29; The Wall Street Journal, October 29; Reuters, October 30.

Execution

0.0 · Mixed

Recent operating results suggest that companies can improve profitability even without maximizing volume. UPS reported higher third-quarter revenue and raised its financial outlook while continuing to reduce less profitable shipments. However, one company’s execution does not establish a broad improvement in operating conditions. The neutral assessment reflects a mixed environment in which outcomes remain highly dependent on industry, operating model, and management decisions.

Evidence: UPS, October 27; Reuters, October 27.

What to Watch

Several developments over the coming weeks will provide additional evidence about the direction of business conditions.

The November 3 midterm elections

The immediate outcome will establish the composition of Congress. The more consequential business developments will follow as legislative priorities, committee leadership, and the prospects for specific tax, spending, and regulatory proposals become clearer. Businesses should distinguish changes in political control from actual changes in law.

Holiday spending and profitability

The National Retail Federation’s $1.013 trillion forecast establishes a benchmark for seasonal demand. Retail sales, promotional activity, inventory levels, and operating margins will help determine whether higher spending reflects greater purchasing activity or continued price increases. The performance of retailers, delivery companies, and consumer-facing services will provide useful evidence beyond the headline sales totals.

The Federal Reserve’s December decision

September’s inflation readings and the October decision to maintain rates leave the direction of monetary policy unresolved. Subsequent inflation and employment data will help determine whether the Federal Reserve considers additional tightening necessary. For businesses dependent on borrowing, the implications extend to investment timing, financing costs, and acquisition economics.

The returns on business investment

Technology companies are continuing to invest extraordinary sums in AI infrastructure, although recent earnings have prompted investors to question how quickly those commitments will produce returns. Future earnings, cash flow, and capital expenditure announcements will help establish whether the current investment cycle can sustain itself at the pace businesses have anticipated.

Taken together, these developments will help determine whether the economy enters 2027 with greater capacity for profitable growth or with the same constraints that have complicated business planning throughout much of 2026.

The Bottom Line

The American economy is entering the final months of 2026 with considerable momentum, although the benefits of that growth remain uneven. Consumers are spending, businesses are investing, and inflation continues to influence what both can afford.

The coming weeks will bring election results, holiday sales figures, and further indications of where interest rates may be headed. Each will provide new information, although the consequences of those developments will unfold over a much longer period.

For businesses preparing for 2027, the most important consideration may be how much of their future performance depends on decisions already made, and how much remains exposed to circumstances that have yet to be determined.

Five Important Reads

Five independent perspectives that provide additional context on the forces influencing business conditions.

01.Economic Growth

U.S. economy grows at brisk 3.4% pace in third quarter on strong consumer spending and AI investment

Associated Press, via PBS News · October 29, 2026

The latest GDP report reveals the importance of consumer spending and AI-related business investment to third-quarter growth, alongside continued weakness in residential construction.

Why it matters: Understanding where economic expansion is concentrated helps executives distinguish broad economic strength from the conditions affecting their own industries.

02.Consumer Behavior

Consumer sentiment nears all-time low ahead of midterms

ABC News · October 23, 2026

The University of Michigan’s consumer sentiment index finished October at 48.0, the second-lowest final reading on record, as inflation and high gasoline prices strained household budgets even while other measures showed a resilient economy.

Why it matters: Consumers’ experiences of inflation may influence spending decisions long after the rate of price increases begins to moderate.

03.Operating Performance

United Parcel Service expects fatter holiday profits on slightly slimmer volume

Reuters, via The Lufkin Daily News · October 27, 2026

UPS is improving its financial outlook while pursuing a strategy that prioritizes more profitable shipments over overall package volume. The approach is particularly relevant as the holiday delivery season approaches.

Why it matters: Revenue growth and profitable growth are different accomplishments, and the distinction can materially change how companies evaluate customers, capacity, and operating performance.

04.Monetary Policy

Federal Reserve’s preferred measure of inflation rose slightly in September

The Hill · October 29, 2026

September’s inflation figures show renewed price pressure as the Federal Reserve evaluates whether further interest-rate increases may be necessary.

Why it matters: Businesses entering 2027 with significant financing requirements face continued uncertainty about borrowing costs and the economic assumptions underlying capital commitments.

05.Investment and Capacity

AI Infrastructure Spending Extends Core Capital Goods Growth in September

PYMNTS · October 27, 2026

September’s durable goods orders rose 1.8%, the sixth increase in seven months, with core capital goods orders up 0.5% and AI-related spending continuing to lead business investment. Some firms tied their investment plans to the midterm elections and the path of Federal Reserve policy.

Why it matters: A growing share of investment momentum is being influenced by infrastructure commitments whose costs, capacity requirements, and eventual returns will shape business conditions for years.