As the U.S. economy heads into 2026, the report card on its performance is complicated.
By many measures, the world’s largest economy appears to be in a strong position.
Recent growth has exceeded most analysts’ expectations after a tumultuous year marked by President Donald Trump’s return to the White House and a move toward tariffs and protectionism.
President Trump praised his economic performance in a speech this month, claiming the United States is in the midst of an economic boom “the likes of which the world has never seen.”
However, there are signs of weakness in the economic indicators that point to future risks. And importantly, Americans are broadly pessimistic about their material condition.
Here are some of the key indicators for the U.S. economy as 2025 draws to a close.
GDP growth rate
After showing modest expansion in the first half of 2025, gross domestic product (GDP) growth in the July-September period far exceeded expectations, reaching an annual rate of 4.3%.
It was the strongest performance in two years. It also significantly outperformed the United States and similar developed countries.
In the third quarter, the euro zone and UK economies grew at an annualized rate of 2.3% and 1.3%, respectively.
Japan, the world’s fourth largest economy, shrank by 2.3% during the same period.
U.S. economic growth, while strong, has been driven primarily by billions of dollars of investment in artificial intelligence led by a handful of tech giants including Microsoft, Amazon and Alphabet.
According to some estimates, AI-related spending will account for about 40% of overall growth in 2025.
This means that much depends on whether AI can fulfill its unproven potential to transform the economy.
Many analysts believe that AI will usher in the Fourth Industrial Revolution, but others worry that the technology is being overhyped.
Campbell Harvey, an economist at Duke University, said 2026 could be the year that AI and decentralized finance technologies begin to deliver significant productivity gains.
“We’re on the cusp of AI and other technologies significantly increasing productivity,” Harvey told Al Jazeera.
“This means higher growth. We have yet to see AI deliver this higher growth.”
consumer psychology
Although the U.S. economy is doing well on paper, the public is generally dissatisfied with the state of its finances. In fact, consumer sentiment is nearing record lows.
The University of Michigan Consumer Sentiment Index was 53.3 in December, up slightly from the previous month compared to 50 in June 2022, when inflation was at a 40-year high.
Yet Americans continue to spend.
Consumer spending rose 3.5% in the July-September period, the fastest pace since the last quarter of 2024.
Splurging shows no signs of slowing down. Spending increased 3.9% from a year earlier, according to Mastercard’s annual report on the Christmas season.
Why is there a disconnect between spending and sentiment? Wealth divergence between wealthy and wealthier Americans.
The top 10% of earners account for about half of the spending, the highest share since authorities began compiling the data in 1989, according to Moody’s Analytics.
Mr. Harvey gave the overall economy a score of 6 out of 10.
“Many believe the U.S. is stuck at 2% real GDP growth. The third quarter showed that more growth is possible. I think many are too pessimistic. We need more ambition,” he said.
Rolf J. Langhammer, a researcher at Germany’s Kiel Institute for the World Economy, said the economy was rated a “6 at best,” noting that at the start of President Trump’s term, the International Monetary Fund had forecast growth of 2.7%.
“The current strength is visibly declining, only about 2%,” Langhammer told Al Jazeera.
us stock market
At the beginning of this year, stock prices fluctuated greatly due to President Trump’s repeated tariff announcements, but stock prices are expected to end 2025 on a high note.
The benchmark S&P 500 is up nearly 18%, easily outpacing its average annual return of 10.5%.
Most Americans own stocks, but the profits disproportionately benefit wealthy households.
According to Gallup, stock ownership ranges from a high of 87 percent for households earning more than $100,000 a year to a low of 28 percent for households earning less than $50,000 a year.
inflation
Prices are rising at a modest pace despite concerns that President Trump’s tariffs will accelerate inflation, but they remain above the Federal Reserve’s 2% target.
Year-on-year inflation in November was 2.7%, down from 3% in September.
Inflation is well below its recent peak of 9.1% in June 2022, but Americans are still feeling the pinch, even though then-President Joe Biden faced similarly gloomy public opinion on the economy.
In a PBS News/NPR/Marist poll conducted this month, 70% of respondents said they can’t afford to live in their area.
Some economists have warned that the full impact of the tariffs may have been delayed as companies stocked up on imports in anticipation of higher costs.
Langhammer said the jury is out on whether the cost of living will remain stable next year.
“Import advances are fading, and the inflationary impact of tariffs on top of a weaker dollar will become more pronounced in 2026,” Langhammer said, noting that the average effective tariff rate was 17%, about five times higher than before Trump took office.
But Harvey said he believes the economic impact of the tariffs will be minimal.
“The United States has a very small trading sector compared to other countries. If we measure trade intensity as the sum of exports and imports divided by GDP, the United States ranks as one of the least trade-intensive countries in the world.”
“Another way to look at this is to look at the size of imports relative to GDP, which turns out to be about 14%. That’s why I don’t think the impact of tariffs on the economy is as important as it gets in the media.”
employment
Despite President Trump’s pledge to restore America’s manufacturing glory, the unemployment rate has steadily risen since the start of his second term in January.
The official unemployment rate rose to 4.6% in November from 4% in November, the highest level in four years.
President Trump has blamed the increase on government job cuts implemented by billionaire Elon Musk’s Department of Government Efficiency (DOGE), but these cuts account for only a small portion of the total number of unemployed workers.
DOGE cut about 300,000 federal jobs, but 1 million more Americans were classified as unemployed in November than in January, according to the Bureau of Economic Analysis.
