The State of the U.S. Economy as 2025 Draws to a Close

As we approach 2026, the economic landscape of the United States presents a complex picture. While many indicators suggest that the world’s largest economy is thriving, lingering concerns and public sentiment reveal a different narrative. In the wake of President Trump’s return to the White House and his shift toward protectionist policies, the economy has witnessed growth that has exceeded numerous expectations. This article will delve into key economic metrics, consumer sentiment, stock market performance, inflation, and employment trends shaping the U.S. economy.

Economic Growth Metrics

Gross Domestic Product (GDP) growth has been a focal point for analysts as 2025 comes to an end. After a subdued expansion during the first half of the year, the GDP growth rate surged to an annualized 4.3 percent in the third quarter, marking the strongest performance observed in two years. This figure significantly outpaced comparisons with other developed economies, such as the eurozone’s 2.3 percent and the United Kingdom’s mere 1.3 percent. Notably, Japan’s economy even contracted by 2.3 percent in the same timeframe.

The remarkable growth of the U.S. economy has been primarily fueled by substantial investments in artificial intelligence, spearheaded by industry giants like Microsoft, Amazon, and Alphabet. Estimates suggest that AI-related expenditures contributed to nearly 40 percent of overall growth in 2025. Yet, this dependence on technology raises questions about the real, transformative potential of AI, as many experts express caution regarding its overhyped capabilities. Economist Campbell Harvey from Duke University emphasizes that 2026 may be a pivotal year for AI and decentralized financial technologies to significantly impact productivity. “We are on the verge of seeing technologies like AI drive substantial increases in productivity,” he remarked.

Consumer Sentiment

Despite the seemingly robust economic indicators, consumer sentiment paints a starkly different picture. Many Americans express dissatisfaction with their financial well-being, as evidenced by the University of Michigan’s consumer sentiment index, which hovers near record lows at 53.3 in December. While this figure shows a slight improvement from the previous month, it remains a steep contrast to the 50 recorded in June 2022 during a peak of inflation.

Interestingly, consumer spending continues to rise, increasing by 3.5 percent in the third quarter of the year—the fastest rate since late 2024. Holiday season spending also saw a notable uptick of 3.9 percent according to Mastercard’s annual report. This disconnect between spending and sentiment may be attributed to the growing economic divide, where the top 10 percent of earners now account for approximately half of all spending, the highest recorded since data collection began in 1989.

Stock Market Trends

After experiencing volatile fluctuations earlier in the year due to tariff announcements, the stock market is poised to close out 2025 on a positive note. The S&P 500 index has risen nearly 18 percent, significantly surpassing the average annual return of 10.5 percent. However, the benefits of this stock market boom are not uniformly distributed; wealthier households disproportionately reap rewards, with stock ownership significantly higher among those earning over $100,000 compared to those with incomes below $50,000.

Inflation Dynamics

Concerns regarding inflation have persisted, especially following fears that tariffs would exacerbate rising prices. However, the current inflation rate has remained moderate at around 2.7 percent year-on-year in November, a decrease from 3 percent in September. While this marks a significant drop from the highs of 9.1 percent in June 2022, many Americans still grapple with the financial strain of living expenses. A recent poll indicates that 70 percent of respondents find the cost of living in their areas to be unaffordable.

Some economists warn that the true impact of tariffs has yet to fully materialize, as many companies stocked up on imports to circumvent higher costs. Harvey asserts that the influence of tariffs on the economy might be overstated, given that the U.S. trade sector represents a small fraction of GDP.

Employment Landscape

Employment numbers have not shown the promised recovery, as the unemployment rate has risen to 4.6 percent by November, the highest level in four years. This marks an increase from 4 percent in January. Trump has attributed this rise to a reduction in government jobs from the Department of Government Efficiency led by Elon Musk. However, the cuts—which affected around 300,000 federal employees—only account for a fraction of the one million additional Americans classified as unemployed since the start of the year, according to the Bureau of Economic Analysis.

Conclusion

The economic outlook for the United States as we head into 2026 is marked by a juxtaposition of growth and underlying vulnerabilities. While GDP growth appears promising and stock markets thrive, the disconnect in consumer sentiment and rising unemployment pose real challenges. The journey ahead will require careful consideration and strategic actions to ensure sustainable prosperity for all Americans.

The U.S. GDP grew by an annualized 4.3 percent in Q3 2025, showcasing strong economic performance.
Consumer sentiment remains low despite an increase in spending, highlighting a divide in financial well-being.
Stock market gains have been unevenly distributed, benefiting wealthier households significantly.
Rising unemployment raises concerns amid the government’s commitment to economic recovery.