Aila Boyd
aboyd@mainstreetnewspapers.com
Despite inflation concerns and a cooling labor market, the U.S. economy remains on solid footing heading into 2026, according to economist Dr. Alice Kassens, who delivered the annual Economic Forecast to members of the Salem-Roanoke County Chamber of Commerce on Wednesday, Oct. 1 at the Cregger Center at Roanoke College.
Kassens, a professor of economics at Roanoke College and a senior analyst with the Federal Reserve Bank of Richmond, walked attendees through national and state-level trends in employment, inflation, government spending and consumer sentiment — emphasizing that everyday household spending continues to drive the trajectory of the economy.
“Consumers account for about 70% of total spending in the economy,” Kassens said. “As long as households keep spending on goods and services, the economy is likely to remain stable.”
Gross domestic product grew at an annualized rate of 3.8% in the second quarter of 2025, which Kassens described as “a sweet spot” that supports job growth without triggering rapid inflation. Forecasting models from the Atlanta and Cleveland Federal Reserve banks predict similar growth for the current quarter.
However, job creation has slowed. Monthly employment gains have dipped below the 100,000 mark in recent months — the threshold economists typically view as necessary to keep the labor market steady.
“The labor market has definitely cooled,” Kassens said. “It’s not a crisis, but it’s something to watch.”
After peaking at 9% in 2022, inflation had steadily fallen, but recent upticks have economists concerned. The Consumer Price Index now sits at 3%, while the Federal Reserve’s preferred measure — the Personal Consumption Expenditures index — is at 2.8%, both above the Fed’s 2% target.
“It’s moving in the wrong direction,” Kassens said. “Prices aren’t exploding, but they’re not coming down either. Gas and groceries still feel expensive, and consumers notice.”
Consumer sentiment remains well below pre-pandemic levels. Nationally, the University of Michigan’s sentiment index registered 58.2 in September — far lower than the long-term average of 79. Virginia residents are slightly more optimistic at 64.6, according to surveys conducted by Roanoke College.
Kassens attributed the pessimism largely to “sticker shock” from persistent price increases.
Forecasting models from Moody’s Analytics place the odds of a recession in the next 12 months at 37%. While elevated, Kassens noted the figure does not indicate an imminent downturn.
“Nothing in the data is screaming recession,” she said.
A federal government shutdown — which at the time of her presentation appeared likely — would shave just 0.1% off national economic growth per week, Kassens said, calling the broader impact “minimal unless it drags on for months.”
In response to an audience question, Kassens said artificial intelligence is unlikely to significantly disrupt employment in the near term. Only 17% of U.S. businesses currently report using AI in operations, according to federal survey data she cited.
“It’s coming, but probably more slowly than people think,” she said.
Kassens urged business owners to monitor inflation and hiring trends while maintaining cautious optimism.
“We are in a stable — but sensitive — phase of the economy,” she said. “There’s no reason to panic. Just prepare.”
The chamber will host its next professional development session on Oct. 23 at Branch Group headquarters with a presentation on sales and persuasion by Dr. Henry Schaefer, an adjunct professor of pharmaceutical sales at Radford University.
