US Economic Outlook as 2025 Concludes

As the United States economy approaches 2026, its performance reflects a mix of strengths and underlying challenges. While many indicators suggest robust growth in the world’s largest economy, there are also worrying signs of vulnerability that could pose risks in the future. As we examine the state of the economy, public sentiment reveals a different narrative, hinting at the complexities facing American households.

Key Metrics of the US Economy

GDP Growth

After a slow start in the first half of 2025, the gross domestic product (GDP) experienced a remarkable surge in the third quarter, achieving an annualized growth rate of 4.3%. This marks the best performance in two years and outstrips growth rates in other developed nations. The economic expansions in the eurozone and the United Kingdom were considerably lower at 2.3% and 1.3%, respectively. Japan even saw a contraction of 2.3% during the same period.

A significant portion of this growth can be attributed to investments in artificial intelligence, predominantly driven by major technology firms. Estimates suggest that AI investments contributed to around 40% of the overall growth. This reliance on AI raises questions about the dependence on its potential—a potential that some experts believe is still uncharted. Economist Campbell Harvey from Duke University stated that 2026 could be pivotal as AI begins to significantly impact productivity. “We are on the brink of seeing how technologies like AI could fundamentally enhance productivity,” Harvey remarked.

Consumer Sentiment

Despite strong economic indicators, consumer sentiment tells a different story—many Americans feel dissatisfied with their financial situation. The University of Michigan’s consumer sentiment index recorded a low score of 53.3 in December, although it indicates a slight improvement from previous months. Comparatively, the index had plummeted to 50 in June 2022 during a surge in inflation.

Nevertheless, spending patterns show resilience, with consumer expenditures rising by 3.5% in the third quarter—the fastest rate since late 2024. This spending spree continued into the holiday season, with a reported 3.9% increase over the previous year. This paradox of high spending amid low sentiment is influenced by growing wealth disparity, where the top 10% of earners now account for nearly half of all consumer spending—the highest level since records began in 1989. Harvey assessed the overall state of the economy as a six out of ten, suggesting that the potential for higher growth exists beyond the prevailing pessimism.

US Stock Market

After a turbulent start in 2025, largely due to fluctuating tariff announcements, the stock market is ending the year on a positive note. The S&P 500 reported an almost 18% increase, well above the average annual return of 10.5%. However, the benefits of this growth are not felt equally; stock ownership is significantly higher among affluent households, with 87% of those earning over $100,000 owning stocks, compared to only 28% among those earning less than $50,000.

Inflation

Inflation fears, initially sparked by tariff policies, have moderated, though prices remain above the Federal Reserve’s target of 2%. Year-over-year inflation stood at 2.7% in November, a decrease from 3% in September. While this represents a significant drop from the peak of 9.1% in June 2022, when public sentiment about the economy was similarly bleak, many Americans still feel the strain. A recent poll indicated that 70% of respondents considered the cost of living in their areas unaffordable.

Some economists caution that the ramifications of tariffs might take time to materialize, potentially contributing to price increases in 2026. Langhammer, a researcher at the Kiel Institute, highlighted that the average effective tariff rate has surged to about 17%, significantly higher than levels before Trump’s presidency.

However, Harvey disputes the overall impact of tariffs, emphasizing that the US trade sector remains relatively small compared to other global economies. He argued that the significance of trade in relation to GDP is quite low, estimating that imports account for roughly 14% of GDP.

Employment

Despite President Trump’s promises to revitalize the manufacturing sector, unemployment has steadily risen since the beginning of his second term, reaching a four-year high of 4.6% in November, compared to 4% in January. While Trump attributes this increase to reductions in government positions, these layoffs constitute a small fraction of the overall jobless figures. The Bureau of Economic Analysis reported that one million more Americans were unemployed in November compared to the start of the year.

Conclusion

As the year draws to a close, the US economy showcases promising growth led by technological advancements, yet is tempered by consumer dissatisfaction and rising unemployment. This complex scenario illustrates that while the economic indicators may shine, the sentiment and realities faced by many Americans can cast a shadow on what appears to be a thriving economy.

• The US GDP grew at an annualized rate of 4.3% in the third quarter of 2025.
• Consumer sentiment remains low, with significant spending driven by wealthier households.
• Despite a robust stock market, employment figures show an increase in joblessness.
• Inflation has moderated but continues to impact Americans’ financial well-being.