"Good" June retail sales were only in a few places, and outlook for July getting worse

Saw this headline relating to an economic report from last Friday, and I thought it summed up a lot.

Retail sales increased 0.2% in June 2026, the weakest monthly gain since early in the year. This deceleration shows that headline spending cooled after a stronger May. The pattern also aligns with broader signals of moderation across goods categories.

Gasoline-driven drag on totals: Receipts at gasoline stations fell 5.3% as average pump prices dropped sharply. This decline reduced headline growth but did not reflect weaker demand. Instead, it was a price effect that temporarily pulled down top-line sales. The decline in pump prices echoed a fall from $4.61 to $4.18 per gallon during June.

Core categories point to resilience: Ex‑gasoline retail sales rose a much stronger 0.7%, with notable gains in autos, nonstore retail, and various discretionary categories. This indicates consumers were still spending, especially in areas less affected by fuel prices. The breadth of these increases suggests the underlying demand backdrop remains solid.

But then you look at the actual report, and the growth in non-gas sales doesn't happen for most of the retail economy.

Change in retail sales, June 2026
Motor vehicle/parts dealers +2.640 billion
Gas/gas stations -3.372 billion
Non-store retailers +2.699 billion
All other retail categories -0.290 billion

And "all other retail categories" accounted for 55% of all retail sales in May. If a majority of retail sales are going down in the aggregate, in a time when those prices outside of gasoline are still generally growing, that's not a good number.

But because gas prices declined through early July due to optimism (rolls eyes) about peace in the Middle East and resulting increases in oil supplies coming, consumers have been in a better mood.

The University of Michigan's Surveys of Consumers said on Friday its Consumer Sentiment Index rose to 54.4 this month, the highest reading since February, from a final reading of 49.5 in June. Economists polled by Reuters had forecast the index rising to 51.0. The survey was conducted from June 23 to July 13, with more than 70% of interviews completed before the collapse of the ceasefire between the U.S. and Iran last week, which pushed oil prices to a one-month high. Gasoline prices have risen in response.

Oh? So maybe things are different now because national gas prices are set to go back over $4 a gallon this week? And as UW-Madison's Menzie Chinn points out in Econbrowser, just because consumer sentiment was up in June and early July, it doesn't mean people think things are going well, and the trend is still negative over the last year.

Because of the contined consumer spending through June and the break in gas prices lowering inflation last month, it's likely that we see a solid GDP growth figure around 2% when 2nd quarter numbers are released in 11 days. But what seemed like a one-time annoyance of high gas prices is more likely to be several more weeks of gas prices exceeding or near multi-year highs. We also are now facing a food safety scare that will take produce off the market and likely suppress demand in general, and numerous weather events hitting before the main US hurricane season even begins.

It makes the "inflation has peaked and the economy will keep rolling" takes that I've been seeing following last week's CPI and PPI reports sound very premature, if not outright stupid. Q3 is not off to a good start, and the outlook seems more likely to be bad than good. So watch for June's optimism to quickly reverse as Trump's War cranks back up, health insurance costs are set to go up by double digits, and nothing better is coming along.

Trump/Tiffany FEMA help falls short, and state/locals pick up the difference

You may recall this from a couple of weeks ago.

When severe weather hit Wisconsin, I called the White House to help secure the federal support our state needs.

Thank you to President Trump and his administration for their partnership. We’ll keep working to ensure every Wisconsin community has the resources needed to recover. pic.twitter.com/KxJiTMnBhl

— Tom Tiffany (@TomTiffanyWI) June 30, 2026

Naturally, Trump and Tiffany left out that it was Tony Evers' Administration that gathered the information on the damage estimates and sent it on to FEMA. And now in typical Trump/GOP fashion, the reality of what this aid ends up being is short of what the social media posts claimed.

Sure, FEMA allowed for home and property owners to recover damages from the severe weather, and while that money will assist in paying for infrastructure and other public improvements in some of the affected areas, but others were left out.

The June 30, 2026, major disaster declaration FEMA-4923-DR authorized Individual Assistance for Bayfield, Brown, Buffalo, Jackson, Jefferson, Juneau, Kenosha, Manitowoc, Marathon, Milwaukee, Outagamie, Racine, Rock, Sauk, Vernon, Washington, Waukesha, Waupaca, and Winnebago Counties and the Oneida Nation and Public Assistance for Iowa, Jackson, Jefferson, Juneau, Kewaunee, Outagamie, Rock, Vernon, and Waupaca Counties and the Oneida Nation.

The impact to individuals and households and the infrastructure was significant in the areas designated for Individual Assistance and Public Assistance. However, based on the results of the joint, federal, state, and local government Preliminary Damage Assessments, it has been determined that the impact to the infrastructure in Bayfield, Manitowoc, Marathon, and Racine Counties is not of the severity and magnitude to warrant their designation for Public Assistance under FEMA-4923- DR. In addition, it has been determined that your request for the Hazard Mitigation Grant Program is not warranted. Therefore, your request for Public Assistance for Bayfield, Manitowoc, Marathon, and Racine Counties and Hazard Mitigation statewide is denied.

Evers says he will appeal that denial of public assistance, and while local GOP Assembly members expressed disappointment, I have yet to hear a word about this from the guy who wants to replace Evers as Governor, Congressman Tom Tiffany. That’s despite Marathon and Bayfield counties being in Tiffany’s district, in a job he is still pulling 6 figures and benefits for.

And in a matter of interesting timing, the Wisconsin Policy Forum released a report this week on disaster aids and payments in Wisconsin. First of all, the Policy Forum notes that while there is a minimum amount of damage that does have to be met for FEMA aid, there is also no requirement to give aid no matter how much damage happens.

There is no specific dollar threshold that must be cleared to guarantee a major disaster declaration. Instead, disaster recovery must be “beyond the combined capabilities of state and local governments to respond.” There are damage rates per capita that define the minimum thresholds for eligibility. For Wisconsin as a whole, the 2025 threshold was $11.4 million in damage to public property, while for Milwaukee County the minimum was $4.5 million. These are eligibility minimums, but federal law gives broad discretion over these requests to the president, who can decide which parts to approve. Once approved, these declarations make direct aid available to local individuals and governments.

The previous disaster declaration prior to this week was for the storms and record flooding in August, where the Trump Administration allowed aid for individuals in three counties in the Milwaukee metro area, similar to the individual assistance given out from the April floods. The Policy Forum says this has resulted in a large amount of help being sent over to southeastern Wisconsin.

According to FEMA data, nearly 46,000 residents of Waukesha, Washington, and Milwaukee counties applied for individual assistance from FEMA following the August 2025 floods. Milwaukee County residents accounted for over 91% of those requests. As of June 2026, more than $210 million in aid had been distributed to 36,800 eligible applicants across the three counties. Figure 3 shows that property damage was concentrated on Milwaukee’s northwest side.

B But there was nothing given out by the Trump Administration for streets and lands that may have washed away in those record rains of August, or to deal with tree removal or many of the other public needs that resulted from that severe weather event. This led to an additional $16.9 million in state funds being requested by the Evers Administration and approved by the Joint Finance Committee in May, for the amount of weather-related damage claims that had happened in the 2026 Fiscal Year.

However, there is only $3 million in state funds available for disaster assistance in the 2027 Fiscal Year, which started 2 weeks ago. And now there are at least four counties that need additional help to clean up from the tornadoes, floods and severe storms from this April. We also know that there were tornadoes and hurricane-level winds on the 3rd of July that killed 3 children in Lake Geneva due to a capsizing boat, and caused damage and destruction to numerous buildings in the southeastern corner of the state.

Evers has yet to send in a request for disaster aid from that set of storms, and while today’s historically bad air quality doesn’t do a lot of damage to buildings or infrastructure, it will limit a lot of activities around the state for the next couple of days, and does remind us that even weather in other parts of the world can have its effects on our economy. Which is also something that Trump and Tiffany do not especially seem interested in dealing with, and often outright deny is going on.

With property values and the costs of construction and repair continuing to go up, these weather disasters are likely to continue to cost more. That's not even accounting for the increase in intensity and frequency for these types of things (for example, Wisconsin has already had 2 of its top 6 years for tornadoes in 2025 and 2026). Which means that when the Trump Administration refuses to give full assistance to states like Wisconsin, it's the state and local governments that have to pay more. And that's not something Tom Tiffany wants voters to know, but it needs to be said.

No surprise that CPI fell in June, but PPI as well? Now that's interesting

We figured consumer inflation would show prices going down overall in June, due to a significant decline at the pump. But I don’t think we thought it would be this much.

The Consumer Price Index, released Tuesday, showed inflation declined 0.4% on a monthly basis in June, the largest single-month decline since April 2020. Annual inflation also eased to 3.5%, the government said, in the lowest yearly reading since March.

Economists surveyed by Bloomberg had expected inflation to fall just 0.1% from May and rise 3.8% from a year ago, a moderation from May's bruising report as gas prices eased thanks to a now-disintegrating ceasefire in the war with Iran.

Indeed, the index for energy prices tumbled 5.7% in June, while the gasoline index fell 9.7%, though both remain much hotter than a year ago. Food prices, meanwhile, ticked up 0.2%, with lettuce and fish costs driving higher.

"The renewed war in Iran will almost certainly push inflation back up. Relief could be short-lived. But this should give the Federal Reserve some time to see wait and see for awhile," Heather Long, chief economist at the Navy Federal Credit Union, posted on X.

On a "core" basis, stripping out volatile energy and food categories, price growth slid to 2.6% on an annual basis, and was flat for the month. Economists had seen inflation rising 0.2% from May and 2.8% from last year.

That core number will especially buy the Fed some time, since Fed Governor Christopher Waller indicated earlier in the week that stat would be a bigger guide into where things stood than the overall CPI number for June. And that flat reading meant that core inflation followed the overall CPI in having its rate go down vs May.

Digging into the CPI report, we see the moderating and declines in prices were in many areas.

The index for all items less food and energy was unchanged in June after rising 0.2 percent in May. The shelter index increased 0.1 percent over the month, the smallest 1-month change reported for that index since January 2021. The index for owners’ equivalent rent rose 0.2 percent in June, and the index for rent increased 0.1 percent. The lodging away from home index fell 2.3 percent over the month.

The motor vehicle insurance index declined 2.0 percent in June after falling 1.7 percent in May. The index for communication fell 1.5 percent over the month, and the index for apparel declined 0.6 percent. The used cars and trucks index fell 0.2 percent in June.

That was the surprising part, given that May’s core Producer Price Index rose by 0.8%. So are the businesses taking lower profits at this point? Or have those higher producer prices not made their way through, and July will see a return to the inflationary cycle?

Then the PPI report came out on Wednesday. We knew that gasoline fell significantly in June and that would show in the overall PPI number, but apparently the cost of other goods also were going down?

Final demand goods: The index for final demand goods moved down 1.4 percent in June, the largest decrease since falling 1.9 percent in July 2022. Leading the decline in June, prices for final demand energy dropped 6.4 percent. The index for final demand foods moved down 0.6 percent. Conversely, prices for final demand goods less foods and energy increased 0.2 percent.

Product detail: Nearly two-thirds of the June decline in the index for final demand goods can be traced to prices for gasoline, which dropped 12.0 percent. The indexes for diesel fuel, jet fuel, fresh vegetables (except potatoes), crude petroleum, and thermoplastic resins and materials also fell. In contrast, prices for plastic products advanced 1.6 percent. The indexes for residential electric power and for potatoes also increased.

The drop in wholesale food prices got extra attention from me – that’s not something we had seen recently, as the PPI for foods had gone up in 0.2% and 0.5% in April and May respectively. And as hinted above, there was a wide range of foods that had their prices fall at the wholesale level last month.

Change in PPI, June 2026
Grains -12.0%
Oilseeds -7.8%
Fresh/dry vegetables -6.0%
Fresh fruits/melons -2.2%
Processed chickens -2.2%
Processed turkeys -2.1%
Pork -1.9%
Eggs -1.7%
Beef/veal -1.5%

So we should see some relief in grocery prices for July and likely August. And if we don’t, we probably should be suspicious as to why not.

Intermediate producer prices also went down in June (-1.2%), their first decline since October, and a reversal from what we’d seen, as those had gone up by a total of 8.6% over the previous 3 months. It’s weird to me how those sizable intermediate increases from March through May didn’t translate into an increase in overall PPI in the final products for June, and I wonder who ends up losing as a result. Did we just have an odd blip before inflation comes back in July, especially with oil back up toward $80 a barrel? Or are there businesses that are losing out and will see their profits be severely reduced because they can’t pass on the higher costs from this Spring to their customers? I don't see a third option out there.

SThe declining prices of June will buy time for the Federal Reserve to figure out what things look like for the second half of 2026, so don’t count on any moves when the Fed meets on interest rates in 2 weeks. But June’s declines for both CPI and PPI leave me more confused than I was before this week, as this regression from the high inflation of the previous part of 2026 seems too good to be true (maybe literally?).

INFLATION WATCH - it'll be down for June, but likely not for July

Tomorrow, we are likely to find out that not only did we not have inflation for June, but we may well have had deflation!

The cost of living is all but certain to decline in June for the first time since the pandemic six years ago — entirely due to a sharp drop in gasoline prices. The cost of a regular gallon of gas tumbled 15% from mid-May to the end of June.

Economists predict the U.S. consumer-price index fell by 0.2% in June. The critical report for Wall Street will be released Tuesday morning.

The yearly rate of inflation should follow suit, slowing to 3.8%, from 4.2% in May. The May rate was the highest since April 2023.

So nothing but smooth sailing from here in! Prices should fall back, with no need to raise interest rates, because the war in Iran is done, and it only cost us 4 months of higher gas prices and...

Wait, what's that you're telling me?

The U.S. military said it carried out more strikes on Iran on Monday, hours after President Trump announced he would reimpose a blockade against the country and start charging tolls for other countries' ships to pass the Strait of Hormuz....

Earlier, Trump said the United States would not allow Iranian ships to move through the Strait of Hormuz. "We are reinstating THE IRANIAN BLOCKADE, so named because it is only stopping Iran's ships or customers from entering or leaving," he said in a post online.

CENTCOM said the blockade would begin on Tuesday at 4 p.m. ET. The U.S. military last worked to block maritime traffic to and from Iranian ports from April 13 to June 18.

OH COME ON! This is also why I filled up the car today.

As oil was spiking by more than $5 a barrel today, Federal Reserve Governor Christopher Waller was telling New York business leaders that inflation is definitely back in 2026

"We're building off of basically almost, you know, five to six months of 'higher, higher, higher, higher,' on inflation readings," Waller said. "If I get another higher one, I'm going to treat that as signal, not noise.".

Waller went on to say that inflation was widespread in several areas of the economy, beyond the gas price increases in the first half of this year.

In particular, he said he is worried that recent inflation reports have shown price pressures seeming to broaden throughout the economy, beyond the influence of ‌last year's import tariff increases or the recent jump in energy costs ⁠and potentially reflecting more systemic inflation that would require tighter monetary policy. Of the categories in core services, which account for 75% of core prices, nearly 70% have 3-month and 12-month inflation over 3%, he said.

While the situation is not comparable to the breakout of price increases that followed the COVID-19 pandemic, with the labor market not as tight, ⁠for example, Waller said the Fed has the benefit of anchored inflation expectations — an advantage the policy-setting Federal Open Market Committee should not squander by waiting too long to raise rates if inflation persists.

"I don't take the inflationary signals I have discussed today lightly. If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term," Waller said. He added that it would take "several months of lower readings to feel that inflation is finally moving in the right direction."

And that's why you should ignore what is likely to be an overall drop in inflation that's likely to be reported tomorrow morning. Because it'll be because of a one-month drop for gas prices that are likely to bounce back up in July and August. Look to the core rate beyond food and energy to see if that stays in the +0.2% to +0.4% it was in for the first 5 months of this year. Christopher Waller and the rest of the Fed certainly will.

And then watch out for the Producer Price Index report which will drop on Wednesday. Those prices paid by businesses went up by 1.1% in both April and May, and were up 3.5% in the step before final production, indicating that the increase may be even higher for June. If that comes in hot, we are likely heading toward a rate hike some time in the next 2 months, and boy will the Trump/GOPs, coked-up hedge bros and debt-needy AI types hate that!

Medicaid budget deficit is all the more reason it needs to be expanded in Wisconsin

I'd mentioned earlier that the state of Wisconsin was seeing its Medicaid expenses were running higher than expected. Last week, the Legislative Fiscal Bureau sent a note further explaining why the shortfall in Medicaid was happening, and what could be done about it.

First, the LFB mentioned the good news that Wisconsin’s attempt to grab more federal Medicaid dollars for hospital services has been okayed.

In a January 15, 2026, memorandum to you on the 2025-27 biennium general fund condition, it was noted that there was a possibility that the Act 15 [2025-27 state budget] hospital assessment and hospital access payment provisions would not be approved. This was based on preliminary guidance issued by the federal Centers for Medicare and Medicaid Services (CMS) regarding states' use of provider assessments in their Medicaid programs, which suggested that the Act 15 increase may not be granted grandfather status, and thus be could be disallowed under the federal One Big Beautiful Bill Act. Because Act 15 assumed that a portion of the assessment revenues would be used to offset GPR expenditures for the Medical Assistance (MA) program, a decision to not grant grandfather status would result in a GPR budget shortfall for the program of nearly $800 million over the biennium. However, CMS has now approved the Act 15 change, and on June 29, 2026, the Department of Health Services (DHS) published a notice in the Wisconsin Administrative Register indicating that the Act 15 assessment and related hospital access payment provisions are in effect.

You may remember these increased assessments and payments to hospitals were the reason that Governor Evers and the Wisconsin Legislature had to work through the night to get the state budget signed before GOPs in DC were able to formally pass Trump Tax Scam 2.0 into law. That situation also included the absurd series of events where Congressman Derrick Van Orden was telling Evers and the Legislature to increase the hospital assessment ASAP…. because Van Orden was going to vote for the GOP Tax Scam that would prevent them from raising it in the future!

But even though the hospital assessment is OK for RFK, Dr.Oz and company, the LFB says that there are hundreds of millions of dollars that have to be made up in the program.

Although the Act 15 hospital assessments received federal approval, DHS currently projects that the program will have a $322.4 million GPR budget shortfall for the 2025-27 biennium, due to factors unrelated to the Act 15 hospital provisions. Except for the number of enrollees in the elderly category, which are now projected to be modestly higher than budget estimates, enrollment in other groups is trending lower than projected. Consequently, the projected deficit is primarily the result of higher expenditures in certain service categories, despite the lower enrollment. In particular, the program is experiencing higher costs for prescription drugs, nursing homes, and federally qualified clinic services, among others. The following table shows the major service categories for which expenditures are projected to be above or below budget estimates. In addition to the dollar variance, the table also shows the percentage difference. Since only the service categories that show a substantial dollar variance from budget estimates are shown, the amounts in the table do not sum to the total projected shortfall.

The LFB goes on to note that because Medicaid expenses have to be paid for if someone qualifies for coverage of thosae services, there is likely to be a need for the new Governor and Legislature to have to figure out how to fill this budget hole when they take office next January.

….The Department [of Health Services] may have some ability to modify or delay healthcare provider or managed care payments in order to address the shortfall, although these measures would have negative consequences that would also need to be considered. Even if the Department does reduce the imbalance through payment changes, these measures may not be sufficient to fully resolve the shortfall, and budget adjustment legislation may need to be considered prior to the end of the biennium.

Given that Wisconsin is projected to have over $2 billion carried over into this next budget, it may be as easy as designating some of those funds to pay for the higher Medicaid expenses for the 2025-27 biennium. But it also shows that there may be a lot more funds needed to pay for Wisconsin’s health care services in the next 2 years, and unless Medicaid is expanded (which would cut over $1 billion in each of the next two years), it could cut into any chances of further tax cuts or property tax relief as well as investments into roads and education.

Of course, you know what could take care of all of this? Being one of the last 10 states in America to expand Medicaid under the Affordable Care Act, as Governor Evers has asked for in each of the last 4 budgets, and the GOP Legislature has refused to do. This would have the Feds take up almost 30% more of everyday Medicaid expenses than they do today, instead of having the State of Wisconsin pay for it, and when the Evers Administration asked the Legislature to allow Medicaid to cover Wisconsinites that make between 100% and 138% of the poverty line (between $33,000 and $45,540 for a family of 4 in 2026), they estimated over $1.9 billion in state tax dollars would be saved by doing so.

This amount of savings will likely be even larger today, given the increase in health care costs for services of people that currently use Medicaid for services.

In addition, Medicaid expansion would be a sizable benefit for those living just above the poverty line in Wisconsin. Trump/GOP Tax Scam 2.0 drove up the costs of being covered by policies purchased on the Obamacare exchanges - which is often how these folks end up getting insured because Medicaid hasn't been expanded, if they have any coverage at all these days.

Companies offering Obamacare health insurance plans next year are requesting payment rates representing a 14% median increase to premiums ​over 2026 rates, according to data from health policy research group KFF.

The proposed ‌rate for 2027 represents the second-highest increase since 2018, KFF said. Insurers must submit proposals to regulators by July 15, detailing expected costs and planned price changes ahead of the new year.

When insurance companies asked for a median rate hike of 18% last year, they pointed to an expected greater number of higher-risk, or sicker, patients enrolled in the plans ⁠that would not be offset by less costly, healthier enrollees....

Insurers expect the pool of patients with greater medical needs to increase premiums by 4% next year as healthy members continue to drop coverage in 2027. Wider economic inflation, rising costs of medications and increased consolidation of medical providers are also driving the increase in premiums, KFF said.

Obamacare enrollment declined 13% ‌in ⁠2026, from 22.1 million people in 2025, after the expiration of extra subsidies meant to help people keep coverage during the COVID-19 pandemic.

Seems like expanding Medicaid would both fill in the budget hole we have in Medicaid, and make health care more affordable not only for the hundreds of thousands of Wisconsinites that rely on Obamacare for coverage, as well as the many others who have seen their health care costs go up in the last year. I wqould think all WisDems should be running hard on this fact for November, as those health insurance hikes are going to be getting sent to a whole lot of voters in the weeks before they go to the polls this Fall. And there is no longer a GOP gerrymander in place to block Dems from taking over the Legislature and making this into reality.

And given that Tom Tiffany was a part of the group of GOP legislators that refused to expand Medicaid in Evers' first budget in 2019, and then moved onto Congress, where he signed onto the cuts in Obamacare subsidies that are driving up the costs of insurance for so many Wisconinites today. He has earned a hammering for this, and he should be allowed nowhere to hide from it.

Federal budget through June shows deficits, interest costs rising

The Congressional Budget Office gave an update on what the US budget looked like through June. And on the revenue side, there was less than what we had in June 2025. But it was for a one-time payback of an earlier move that boosted revenues.

CBO estimates that receipts in June 2026 totaled $495 billion—$32 billion (or 6 percent) less than the amount recorded last June. That decrease was driven by a sharp decline in net collections of customs duties because of tariff refunds required by the Supreme Court’s February ruling. In June 2026, refunds of customs duties ($50 billion) exceeded gross collections ($24 billion), producing a net outflow of $26 billion—$52 billion below the $27 billion collected last June.

As you will see, tariff revenue has turned negative in the last 2 months, on the heels of a Supreme Court ruling in February that the Trump Administration illegally imposed some duties. This led to a total of $50 billion in refunds being sent to US businesses and individuals in June following $20 billion in refunds for May.

Take away the tariff refunds, and tax revenues were up year-over-year.

Collections of income and payroll taxes rose by $18 billion (or 4 percent), reflecting higher wages and salaries and partially offsetting the decrease in customs duties. (The Treasury reallocated $13 billion from payroll taxes to individual income taxes in June to account for newly available tax information from prior years. That reallocation does not affect the combined increase for the two sources.) In addition, corporate income taxes rose by $2 billion (or 3 percent).

But let's not think that Trump Tax Scam 2.0 is paying for itself with economic growth, because most of the tax benefits came with this year's refunds this Spring. That's especially for corporations, who are paying much less in taxes in Fiscal Year 2026.

Receipts from corporate income taxes [have] decreased by $86 billion (or 24 percent) [compared to Fiscal Year 2025 through June]. The enactment of the 2025 reconciliation act allowed corporations to take larger deductions for certain investments, thereby reducing some payments and offsetting the increases in those receipts that otherwise would have been expected, given the rise in corporate income.

On the spending side, Social Security, Medicare and Medicaid is accounting for 46.2% of overall Federal spending, at $2.55 billion of the $5.52 billion spent so far in Fiscal Year 2026.

Those 3 programs account for $169 billion of the $178 billion in increased spending for FY 2026, which also means that the rest of federal spending hasn't gone up at all for those 9 months.

A big reason that other government spending hasn’t gone up with 2026’s inflation is due to a reduction in the amount of student loans that came from Tax Scam 2.0.

Outlays of the Department of Education decreased by $55 billion (or 55 percent), largely because the department recorded a net reduction of about $53 billion in the estimated costs of outstanding student loans. No annual reestimate of outstanding loans was recorded during the first nine months of fiscal year 2025. In addition, spending from the Education Stabilization Fund declined by $12 billion (or 89 percent). The total decline in education spending would have been larger if not for $11 billion in outlays stemming from the recording of the estimated costs of two administrative actions announced in 2026: one delaying collections on delinquent student loans ($4 billion) and the other providing a discount to borrowers who elect to have automatic monthly payments made from their bank accounts ($7 billion).

And another reason for limited expenditures is related to the Trump Administration picking and choosing which (red) areas get FEMA aid while denying other (blue) areas.

Spending by the Department of Homeland Security decreased by $13 billion (or 15 percent) mainly because the Federal Emergency Management Agency spent more in disaster response during the same period last fiscal year. Increased spending for immigration enforcement and border security this year offset some of that reduction.

At the same time, “on the books” military spending is up $30 billion so far in Fiscal Year 2026, and interest on our national debt is up $98 billion. Don’t expect either to be slowing down any time soon with Trump/GOPs in power.

It's not surprising that budget deficits keep climbing in 2026, but it does seem like the combination of higher prices and rising red ink for Uncle Sam sunk in a bit more in the last week, as interest rates on the benchmark 10-year US Treasury Bond has had a noticeable rebound in July.

Doesn't seem like a healthy situation to continue in, and the continued cutbacks in non-defense and non-entitlement spending can't be something that'll help consumer spending as we look at the second half of 2026. The higher interest rates aren't going to help all those AI firms that are strung out on debt, nor will it encourage the venture capital types to keep pumping their hopium dollars into these businesses. But because the economy allegedly keeps growing and job losses aren't rampant, it doesn't feel like an emergency today. Where this breaks and how it changes as a result is where the real interesting stuff will begin.

Services economy still growing for June, but so were prices.

It seems like the overall US economy was OK as the first half of 2026 ended. The Institute for Supply Management says that services were growing at a decent clip in June, with new orders still being added, and even employment was reported to be up after 3 months of declines.

“Economic activity in the services sector continued to expand in June, say the nation’s purchasing and supply executives in the latest ISM® Services PMI® Report. The Services PMI® registered 54 percent, the 24th consecutive month in expansion territory.

The report was issued today by Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee: In June, the Services PMI® registered 54 percent, a decrease of 0.5 percentage point compared to May’s figure of 54.5 percent. The Business Activity Index remained in expansion territory in June, decreasing 2.3 percentage points to 55.4 percent from May’s reading of 57.7 percent. The New Orders Index registered 55.1 percent, 2.2 percentage points below May’s figure of 57.3 percent. The Employment Index expanded for the first time in four months with a reading of 51.2 percent, a 3.3-percentage point increase from the 47.9 percent recorded in May. All of the four subindexes that make up the composite PMI® were above their 12-month moving averages,” says Miller.

“The Supplier Deliveries Index registered 54.4 percent, 0.8 percentage point lower than the 55.2 percent recorded in May. This is the 19th consecutive month that the index has been in expansion territory, indicating slower supplier delivery performance. (Supplier Deliveries is the only ISM® PMI® Reports index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)

But check out this segment of the ISM report, where they ask the managers about what’s happening with prices in these industries.

And I noticed this comment from someone in Accomodation and Food Services.

“We continue to experience higher prices due to the Persian Gulf conflict through rising diesel fuel costs and increased input costs for resin-based packaging. The brunt of the impact will be experienced in the third quarter (Q3) of 2026, but we are feeling the impact now. Suppliers are aggressively attempting to pass through price increases.”

Then there’s this comment from someone in Wholesale Tade.

“We are experiencing continued sequential top-line growth driven mostly by increased prices.”

Which means they’ve been able to pass higher prices onto the stores, and the stores are likely passing it on to their customers.

So don’t count on consumers getting a price break on anything beyond what we’ve seen at the pump in the last month – and even with the recent declines, we’re still paying 20% more for regular gasoline than we were this time last year. And since we aren’t seeing major job cutbacks with the higher prices, there is no reason for the Federal Reserve to cut interest rates any time soon – if anything, they should be raising them.

Oh, and now Trump says war is back ON in Iran, oil futures are up 9% in the last 2 days and and probably headed higher than that. So don't expect inflation to be coming down any time soon, and in an honest world, rate hikes from the Fed are seeming more likely than not for this year.

That doesn't seem like a winning situation at all for the second half of 2026, does it?