Market Update: We break down the business implications, market impact, and expert insights related to Market Update: Economic forecast: Slower job growth likely, inflation rate to dip – Full Analysis.
A central message delivered Friday (Jan. 30) by Mervin Jebaraj is that economic conditions in 2026 will look similar to 2025 with employment growth continuing to slow, and wages still just keeping pace with inflation that is still trending close to 3%.
That message was heard by more than 1,000 people who attended the annual University of Arkansas Business Forecast Luncheon in Rogers. Jebaraj, director of the Center for Business and Economic Research at the UA, discussed local, regional, state and national economies.
Northwest Arkansas added 11,000 jobs in 2025, and Jebaraj expects the region will add around 9,000 in 2026.
“We expect to see continued job growth in professional business services such as lawyers, accountants, people at corporate headquarters and all the people that work with the people at corporate headquarters, that’s where we continue to see future job growth,” he said.
He also expects to see job growth in the leisure and hospitality and healthcare sectors. The metro unemployment rate in November was 3.2%, lower than the Arkansas rate of 4.1%.
METRO JOB FORECASTS
Jebaraj said Northwest Arkansas has averaged between 10,000 and 12,000 new residents annually since 2018. He said the latest estimate for 2026, to be released in March, is 13,700. He said 10,500 of those are people who moved into the region and the balance is new births. In early 2026, he estimates about 28 people a day are moving to the region.
He said in central Arkansas, 6,000 new jobs were added last year, most of them in leisure and hospitality and healthcare sectors. Jeberaj estimates modest job growth in the Fort Smith metro that added 800 jobs last year. He said the region has struggled to regain jobs it lost following the recession in 2008.
The Jonesboro market created 800 new jobs in 2025, mostly in the service sector. He said the region should also see slightly slower job growth in 2026.
He forecast 13,000 new jobs statewide in 2026, which would be lower than 15,000 in 2025. The Arkansas economy is growing about 3% when not counting the agri sector that continues to post big losses from reduced exports and higher input costs. Agriculture is the state’s largest sector which posted a slight gross domestic product loss in 2025. Impacts from tariffs implemented by the Trump administration should moderate in 2026, but the agriculture sector is bracing for another tough year primarily because of the tariffs.
INFLATION, GDP FORECAST
Alberto Musalem, president and CEO of the Federal Reserve Bank of St. Louis, told the audience that the U.S. inflation rate might move closer to 2% from where it is now at 2.8%.
“By the end of this year, I expect inflation to move closer to the 2.4% – 2.5% range as tariff impacts fade. Then in 2027, I expect the rate to get closer to the 2% target,” he said.
He said the Fed’s dual mandate to keep inflation around 2% and support job growth with a low unemployment rate is a balancing act. He was among those who voted to keep interest rates steady at the recent Federal Open Market Committee meeting.
“I expect the U.S. economy will continue to grow at or above trend this year,” Musalem said. “Of course, nothing is certain, but I see tailwind supporting account growth. Second, the labor market has been cooling over the past 18 months in a gradual and orderly way. The unemployment rate has remained near the level that economists generally associate with full employment. While further cooling is possible, I believe the risk of substantial deterioration in late market conditions has been lessening.”
He described a somewhat mixed sentiment from business leaders about early 2026, based on the fourth-quarter results in 2025. He said many productive forecasts peg fourth quarter real GDP at 2% or higher, and forecasters have been marking up their growth projections for 2026.
“I expect the economy will continue to expand at or above its long run trend rate in 2026 based on solid consumer spending in October and November, and retailers reported a good holiday shopping season,” he said. “Reports indicate that consumer spending was especially strong late December and into January, a resilient labor market income growth and accumulated wealth effects have supported consumer spending.”
A GLOBAL VIEW
He said tax law and various forms of deregulation could also lift spending in 2026. Estimates vary, but reductions in individual income tax rates and changes that incentivize firms to increase business capital expenditures enacted in 2025 are expected to boost growth in 2026.
Musalem said the housing sector remains tight and he does not expect any relief in 2026 nor any positive contribution to the overall economy. Lower fuel prices are a positive, but that is tempered by higher utility and insurance costs, he said.
Musalem something he has noticed about Northwest Arkansas was the global reach of companies based here.
“When I visit with these corporate execs, I not only get an account of the local, state and national business climate, but also a global view,” he said. “It’s unique to get all of that information in one visit.”
Bankers, according to Musalem, are some of the most optimistic about 2026 economic conditions.
“Retailers and manufacturers along with bankers tend to be the most optimistic,” he said. “Agriculture, transportation and healthcare are less so. Companies that are farther away from the consumer are passing higher costs along, but those downstream are having a harder time passing along higher costs to American consumers.”
He expects the use of AI (artificial intelligence) in the economy to generate more productivity. He said more productive companies are generally profitable, but it remains to be seen how AI adoption will impact the labor market.