Economic Outlook 2026
Watch to see more from Brian Canina:
Clouding the Issue
The Forecast Calls for … More Uncertainty
It’s called the ‘quits rate.’
As that name suggests, it represents the number of employees who voluntarily quit their jobs as a percentage of total employment.
When times are good for workers, the quits rate is understandably higher. When times are not so good, or when there are high levels of anxiety and uncertainty about the economy and the jobs market — and that would describe the current climate — the rate starts to come down.
“Over the past few months, quits have dropped precipitously,” said Bob Nakosteen, a semi-retired Economics professor at UMass Amherst’s Isenberg School of Management, reflecting on a jobs market increasingly described with the words ‘stuck’ and ‘stagnant.’ “People are hanging onto their jobs for dear life, which tells me that they’re not getting offers to entice them to quit, and they don’t feel that they can take the risk to leave their job and look for another one, because they’re just not out there.”
This sentiment is reflected in the latest jobs report: the Bureau of Labor Statistics reported a few weeks back that the U.S. economy lost 105,000 jobs in October and added 64,000 jobs in November, with the unemployment rate rising to a four-year high of 4.6% that month.
The falling quits rate and the jobless numbers are just two of the many ways economists and business leaders are trying to quantify and qualify the current economic scene, often described as ‘confusing,’ although quantifying is more difficult with fewer hard numbers to work with — in general, and even more so because of the recent government shutdown.
Another measure is the Associated Industries of Massachusetts’ (AIM) Business Confidence Index, or BCI. Scored on a 100-point scale, with 50 indicating neutrality, the monthly BCI soared to 57.7 when President Trump was elected in November 2024, but quickly fell to 41.5 (a COVID-like level) in April when Trump’s tariff plan was announced, and has continued to hover below 50 since, AIM President Brooke Thomson said.
She told BusinessWest that, overall, the business community doesn’t like uncertainty, and the prospect for more in 2026, reflected in the BCI numbers, poses questions about what kind of year it will be.
Between the quits rate, the BCI, and other measures, the emerging picture is one of continued uncertainty, even about the near term, let alone several quarters out, given ambiguity about matters from tariffs, interest rates, the jobs market, and the AI investment boom (and whether that bubble is about to burst) to inflation and affordability crunch.
There is some optimism following the most recent quarter-point interest rate drop early last month, but there will need to be more of those, and likely more substantial cuts, in the year ahead for a deep impact to result, said those we spoke with.
Bob Nakosteen
“People are hanging onto their jobs for dear life, which tells me that they’re not getting offers to entice them to quit, and they don’t feel that they can take the risk to leave their job and look for another one, because they’re just not out there.”
“With the recent Fed rate cuts, we’re expecting things to probably pick up, modestly, because there is still some potential uncertainty, economically,” said Brian Canina, president and chief operating officer of Holyoke-based PeoplesBank. “If the Fed continues to lower rates, and the lowering of the rates on the short end of the interest rate curve impacts the long-term interest rate, and those come down, we may see some increased lending and some potential refinancing.”
Overall, said Nakosteen, there is a mixed economic picture for 2026, with expectations for slower growth and perhaps — that’s perhaps — a mild, short recession.
But it’s very difficult to project without hard data, with so much uncertainty clouding whatever picture the data presents, and amid a variety of mixed signals, such as GDP rising a robust 4.3% in the third quarter at the same time as bourbon maker Jim Beam announced it would be shuttering one of its distilleries in Kentucky, in part due to tariffs and slumping demand.“
The data are not painting a clear picture at all. Unemployment is going up — kind of gently, but it’s going up. Inflation is rising — kind of gently, but it’s still rising,” he said, adding that the country may be heading for what economists call ‘stagflation,’ a somewhat rare economic condition characterized by high inflation, stagnant economic growth, and high unemployment occurring simultaneously.
Ups and Downs
As he talked about 2025 and what kind of year it was for the region, Aaron Vega spoke from two different, but in many ways similar, perspectives — first as outgoing director of Planning & Economic Development in Holyoke and the incoming president and CEO of the Western Massachusetts Economic Development Council.
Brian Canina
“With the recent Fed rate cuts, we’re expecting things to probably pick up, modestly, because there is still some potential uncertainty, economically.”
“It’s like two steps forward, two steps back, one step to the side,” he said, noting that this was true in Holyoke, but also the region. While new businesses were added, including Pickleball Kingdom at the Holyoke Mall, and new initiatives launched, there were setbacks, such as recent layoffs at Yankee Candle and Sublime System’s decision to pause its project to build a plant in Holyoke following the loss of a U.S. Department of Energy grant.
Elaborating, Vega said the region’s economy was buffeted by some strong headwinds, most of which were beyond its control. These included tariffs, policy changes, inflation, ongoing changes in the retail realm, and even the price of energy.
“We all know that Massachusetts is a bit of an expensive state in which to do business. So how do we entice businesses to come to Massachusetts, and then, how do we get them to come to Western Massachusetts when we’re still developing our hubs and developing our initiatives?” he asked, adding that these same headwinds will prevail in 2026.
This up-and-down nature of the economy was reflected in the BCI numbers for 2025, said Thomson, noting that the index would rise a few points one month, drop a point or two, then rise again, and then fall again; it was up two points to 48.5 in November, for example. This wavering is a symptom of uncertainty and policies that foster it, she said, adding that the sluggish performance in 2025 — some economists say the country is teetering on recession if not officially in it — was different from such cycles in the past.
“Most recessions, or downturns, occurred because of some sort of situation in the financial markets, some sort of causation that deeply hit our financial markets,” she explained. “This was different; it’s almost self-inflicted through policy. There’s nothing inherently wrong in the financial sector.
Aaron Vega
“It’s like two steps forward, two steps back, one step to the side.”
“There’s still money out there to lend to businesses, there’s opportunities for businesses, but there is feeling on behalf of business leaders that they don’t know what to expect … ‘I don’t know what my bottom line is going to be, I don’t know what my costs are going to be, so I’m not going to take out that loan, I’m not going to do that expansion project, I’m not going to give out big bonuses or hire more people because I don’t know what’s around the corner.’”
This was the picture throughout 2025, and this sentiment is expected to continue into at least early 2026, Thomson said, adding, again, that business owners like consistently and reliability, and these are two commodities missing at the federal policy level, and there has been a resulting trickle-down to states, with some, like Massachusetts, getting hit harder than others.
Indeed, several sectors in the Bay State were deeply impacted by federal policy changes, including healthcare (see related story on page 25), education, and especially manufacturing, due to tariff policies, she noted.
“I’ve been throughout the state this year visiting manufacturers, and even the ones that are managing to do all right are doing it because they’re being really, really creative, despite this,” she added. “And they would never say they’re thriving; they’re saying, ‘we’re being creative, and we’re managing it.’ But I have more stories with people saying, ‘this is killing me — I’m barely making it,’ and there have been two or three small business that have actually closed their doors.”
Fear of the Unknown
Carol Campbell, president of Chicopee Industrial Contractors (CIC), spoke for many business owners when she said 2025 was “an interesting year,” marked by those headwinds Vega mentioned, and especially tariffs.
CIC works with manufacturers, handling rigging, machinery moving, machine installation, and other services, and many of those machines are made overseas, said Campbell, adding that the tariffs placed on them — or the threat of tariffs, as well as general uncertainty about what might come next — prompted some hesitation and project delays.
Brooke Thomson
“Most recessions, or downturns, occurred because of some sort of situation in the financial markets, some sort of causation that deeply hit our financial markets. This was different; it’s almost self-inflicted through policy. There’s nothing inherently wrong in the financial sector.”
“What we found was just a fear of the unknown,” she explained, adding that, by March, even Fortune 500 companies were hitting pause on some projects.
Things improved as the year went on, and, overall, 2025 was a solid year, she said, adding quickly that there is optimism about 2026, but also some lingering fear of the unknown.
As they look ahead, those we spoke with said several factors will determine the trajectory of the economy, especially the AI investment boom and whether that bubble will burst, inflation, consumer spending, business confidence (especially when it comes to hiring), and, of course, interest rates.
“A lot of it will hinge on what happens with interest rates,” said Canina, adding that the size and frequency of cuts will ultimately determine the impact on the economy.
“A 25-basis-point change is not necessarily going to have a significant impact,” he explained. “But when you see the Fed make consecutive rate cuts, and if they were to drop a full percentage point in a six- to 12-month period of time, I think by the 12-month point you’ll start to see some pickup, and then, it will continue to grow from there.”
Elaborating, he said many businesses remained on the sidelines in 2025 when it came to large investments and expansion initiatives, due mostly to uncertainty about the economy and where things were headed, and partly to interest rates still well above those enjoyed just a few years ago, post-COVID. He’s optimistic that some will get back in the game in the months to come.
Jeff Sullivan, president and CEO of Springfield-based New Valley Bank, agreed.
“The mortgage rates and the longer-term rates, we don’t see them coming down quite as much,” he said. “It’s nothing that’s going to change consumer behavior — we don’t see a refinance boom.
Carol Campbell
“What we found was just a fear of the unknown.”
“Meanwhile, the idea of borrowing money at 6% or 6.5% doesn’t seem to be unpalatable,” he added, opining that current rates are not stifling activity. “It’s not stopping deals from happening. Would they rather borrow at 5%? Absolutely they would, but where we are now is tolerable. When the rates peaked nine or 10 months ago and it was hard to get under 7%, that was starting to chill the market, but now we’re back down to 6% or 6.5%, and that’s not stopping anyone.”
Overall, Sullivan is more upbeat about 2026 than some others we spoke with. He said 2025 was a solid year for the bank, in deposit growth and otherwise, while he also noted cautious optimism among many commercial customers.
“The overall mood is generally positive,” he said. “The people who are more nervous are the people who do business with the general public, especially with the middle-class, working-class general public. The firms that are business-to-business sales … I think the optimism is there. The firms that are dependent upon lower- and middle-income consumers being their customers … I’m more worried.
“It’s the K-shaped recovery,” he went on. “The rich get richer, and the poor get poorer; we definitely see that sentiment among our customer base.”
Meanwhile, he expects the recent wave of mergers and acquisitions to continue, as businesses search for all-important scale and private equity firms continue their hunt for opportunities across seemingly all sectors of the economy.
“These private equity companies have a belief that they’re going to be so successful, they’re paying top dollar to acquire local companies and roll them up into a much larger platform,” he said, adding that the trend extends across the board, even to HVAC contractors, alarm companies, and sprinkler companies. “We hear from customers every quarter that are taking buyout offers; they’re saying, ‘I can’t say no to this. It’s so much money; it’s more than I thought I’d ever get. I wasn’t ready to sell, but I can’t say no.’”
