Tariffs, War And Debt Put Wisconsin’s Economy On Caution Flag

New home construction.

Economic growth is slowing down nationally and in Wisconsin this year, on top of a year of underperformance in 2025, a national economist for the homebuilding industry said Wednesday.

At a presentation in Madison to the Wisconsin Bankers Association, Robert Dietz said the risk for a recession has risen in 2026, driven in large part by the Iran war and its effect on the price of oil.

Dietz is the chief economist for the National Association of Home Builders, which at the start of 2026 gauged a 30% chance for a recession this year — already a little higher than the average annual risk of 15-20%.

The 2026 Wisconsin Economic Forecast, an annual program, was put on by WisPolitics + State Affairs and WisBusiness along with the bankers group.

For this year, “we have now raised that to 40% , and you can find plenty of economists that think that recession risk is about 50% or higher,” Dietz said.

Up to now, the economy has been “good, not great,” Dietz said, with annual growth of 2.1% in 2025.

“We expect the economy this year to grow at only a 1.9% growth rate,” he added. “It’s getting awfully close to what we call stall speed at that level, and obviously the run up in oil prices is the big dragging factor that is hurting.”

The national unemployment rate is 4.3% — a point higher than Wisconsin’s rate of 3.3%. With slower economic growth in the picture, his team is forecasting the unemployment rate to rise up to 5% — “not bad, but it is deteriorating,” Dietz said.

Tariffs imposed by President Donald Trump are also impinging on the economy, Dietz added.

“Tariffs change the cost of inputs,” Dietz said, affecting economic sectors ranging from soybeans to manufacturing. “The cost of aluminum in the United States right now is 40% higher than it is in the global marketplace. That is due to tariffs. And I’m a supply-side free market economist — I’m not a big fan of taxes, I’m not a big fan of tariffs. I just don’t think they’re a particularly good way to raise revenue.”

In 2025, U.S. manufacturing lost about 100,000 jobs, “and that was directly attributable to tariffs.”

With the war in Iran and a corresponding spike in the price of oil, inflation has jumped back over 3%, Dietz said.

But for the last three years, more than half of the increase in the consumer price index has been in the cost of housing, including rent and other homeownership costs. Dietz said the homebuilding industry wants to see policies that reduce the cost of construction and increase housing inventory.

Another “caution flag” on the horizon is consumer debt, he said. Mortgage delinquency rates have risen slightly but remain low. Other debt indicators have prompted concern, however.

Delinquency rates are rising on shorter-term loans for seven to nine years. Credit card delinquency rates have gone up, and the average credit card interest rate, 20-25%, is “kind of a yellow caution flag.”

About one in three car owners with unpaid loans has a balance that is more than the car’s market value, Dietz said — echoing the subprime housing loan crisis that helped trigger the Great Recession in 2008.

Student loan delinquencies, however, have gone up to more than 16% — one-and-a-half times their peak in 2013.

“That’s going to have an impact on rental demand” in the housing market, Dietz said. For the borrowers who fall behind, it could endanger their future credit and crowd them out of the home-buying market.

Economic uncertainty persists, and “the cost of that uncertainty” has been declining international investment in 10-year U.S. Treasury bonds, Dietz said. In response to that drop-off, the interest rate paid to investors on those bonds has risen to 4.4% after starting the year at 4%.

“That’s going to have follow-up effects on mortgage rates, real estate development and apartment construction,” Dietz said.

In a follow-up discussion, economist Scott Hodek of the Wisconsin Department of Workforce Development and Tim Schneider, president and CEO of Bank Five Nine in Oconomowoc, echoed much of Dietz’s assessment, while observing that Wisconsin overall has been in better shape so far.

Even with some decline in overall jobs and in the labor force over the last year in Wisconsin, “we’ve seen growth in some industries,” Hodek said — notably construction and healthcare. While manufacturing employment has fallen, Hodek said manufacturers still report having jobs to fill, but difficulty filling them.

Wisconsin residents of working age who are younger than 65 and who don’t have jobs are most often people with responsibilities for caring for their children or for the elderly, Hodek said. That means addressing the demand for care as well as other factors that might get in the way of people wanting to join the labor force, he said, because when there’s a mismatch between workers and the jobs available, “you’re going to have folks sitting on the sidelines.”

Schneider said that from his vantage point, Wisconsin’s economy is “in pretty good condition.” Tariff expenses, fuel surcharges as the price of gas goes up and continued concerns about finding workers complicate that picture, he added.

Immigrant workers remain important in industries ranging from dairy farming to construction, he said.

“I think we need to figure that out at the federal level,” Schneider said. “And I’ve talked to our congressional folks and Senate folks about this — both sides just can’t seem to figure it out. I think both want the same thing, but just can’t get it done.”

Forecast: Between tariffs and renewed inflation, economy is ‘good, not great’ in Wisconsin, US was originally published by Wisconsin Examiner.