By Jeffry Bartash
The economy keeps expanding in the face of macro obstacles
The U.S. economy appears to be in cruise control
The apparently unsinkable U.S. economy cruises on.
For the second month in a row, businesses created a lot more jobs than Wall Street expected. Other recent indicators also pointed to steady growth in the U.S. economy.
Read: Economy adds 115,000 jobs and unemployment stays at 4.3%
Just a month ago, many economists were expecting the surge in oil prices after the Iran war to weigh on growth. Higher fuel expenses would raise inflation, crimp consumer spending and prod businesses to put hiring and investment plans on hold.
Inflation has risen all right, and higher gas prices are putting a strain on U.S. households. Yet the economy has continued to expand at an above-average pace and create new jobs.
How come?
The chief source of U.S. growth lately is heavy businesses investment in new technologies such as artificial intelligence. Companies don't want to get left behind and they feel an urgency to invest now.
Consumer spending, normally the main engine of the economy, hasn't been as strong. But it's certainly not sputtering.
The resilience of the economy largely stems from the symbiotic relationship between corporate profits and low unemployment, some analysts contend.
Profit margins of the S&amp;P 500 SPX in the first quarter may have reached a record high, a new FactSet study showed. Higher margins have allowed companies to absorb the cost of the Trump tariffs and rising oil prices (CL00) tied to the Iran war. At the same time, companies can maintain current employment levels and boost investment.
With unemployment low at 4.3%, most Americans are secure in their jobs. They can afford to keep buying goods and services produced by businesses.
Since sales are growing and profits are high, businesses have little need to resort to layoffs or cut jobs.
Thus, a virtuous cycle of economic growth.
&#34;The economy is so much better than what the doom crew has been saying,&#34; said Chris Zaccerelli, chief investment officer at Northlight Asset Management. &#34;There are a lot of headwinds - higher oil prices, sticky inflation and higher-for-longer interest rates - and yet the labor market is adding jobs, GDP is growing and corporate profits are expanding at a rapid pace.&#34;
Fresh optimism about the economy is evident in the huge rally on Wall Street after the outbreak of the Iran war sent stocks tumbling in March.
As MarketWatch detailed last week, the U.S. economy has repeatedly shrugged off one blow after another since the end of the pandemic recession. The six-year-old economic expansion can't go on forever, but it can go on for quite a while - as long as the labor market is stable and profits remain high.
Yet unsinkable doesn't mean unshakable.
Some analysts warn the full effects of higher oil prices still haven't worked their way through the economy. More inflation is on the way, they say, and that will put a greater strain on the economy over the summer.
Higher gas prices will especially hurt middle- and lower-income Americans, potentially putting a lid on consumer spending.
Until very recently, pessimists argue, consumer spending had been propped up by the latest Trump tax cuts and bigger-than-usual tax refunds. The refunds have been mostly spent by now and won't help much longer.
&#34;While tax refunds provided a one-time buffer to the inflation shock from the Middle East, falling [inflation-adjusted] wages will bite into spending in the coming months,&#34; said economists Gregory Daco and Lydia Boussour of EY Parthenon.
The recent acceleration in hiring also has doubters.
The back-to-back job gains in April and March - the strongest seen since the end of 2024 - probably can't be sustained, they say, based on the low level of job openings and surveys showing caution on the part of businesses.
&#34;We are doubtful that these firmer March and April numbers mark the start of a sudden upward trend in job creation,&#34; said James Knightley, chief international economist at ING.
Maybe not. Yet hiring only has to rise modestly while unemployment stays low to give the economy all the support it needs to keep growing.
&#34;Stronger job gains and steady unemployment reinforce the economic resilience narrative,&#34; said Angelo Kouortkafsa, senior strategist at Edward Jones. &#34;These trends remain supportive of consumer spending, even in the face of higher energy costs.&#34;
-Jeffry Bartash
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05-09-26 0900ET

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The U.S. economy continues to expand despite challenges from rising oil prices due to the Iran war. Job creation has exceeded expectations, with unemployment at 4.3%. Businesses are investing heavily in new technologies, supporting growth. While inflation is rising, corporate profits remain high, allowing companies to maintain employment levels. However, analysts warn that the full impact of higher oil prices may strain consumer spending, particularly for lower-income households. Despite some skepticism about sustainability, the labor market's stability and corporate profits are seen as key to ongoing economic resilience.

- The U.S. economy continues to expand, adding 115,000 jobs as unemployment remains steady at 4.3%.  
- Businesses are investing heavily in new technologies, which supports ongoing growth despite rising inflation and oil prices.  
- While some analysts caution about potential future inflation and the sustainability of recent job gains, the current dynamics suggest continued resilience in consumer spending and corporate profits.

The unsinkable U.S. economy cruises on, despite headwinds from the Iran war