As the United States economy heads into 2026, the report card emerging on its performance is complicated.
By many measures, the world’s largest economy appears to be in a strong position.
After a tumultuous year marked by President Donald Trump’s return to the White House and his swing towards tariffs and protectionism, recent growth has outpaced the expectations of most analysts.
In a speech this month, Trump hailed his economic record, insisting that the US was on the cusp of an economic boom the “likes of which the world has never seen”.
Yet nestled within the economic data are signs of weakness that hint at risks down the track. And crucially, Americans are widely pessimistic about their material condition.
Here are some of the key metrics of the US economy as 2025 draws to a close:
GDP growth
After a modest expansion in the first half of 2025, gross domestic product (GDP) growth blasted past expectations in the July-September quarter to reach an annualised 4.3 percent.
That was the strongest performance in two years. It was also well ahead of the US’s fellow developed countries.
During the third quarter, the eurozone’s and the United Kingdom’s economies grew just 2.3 percent and 1.3 percent, respectively, on an annualised basis.
Japan, the world’s fourth largest economy, contracted 2.3 percent during the period.
While robust, the growth of the US economy has been largely driven by multibillion-dollar investments in artificial intelligence led by a handful of tech giants, including Microsoft, Amazon and Alphabet.
By some estimates, AI-related spending accounted for about 40 percent of all growth in 2025.
That means a lot rests on AI delivering on its as yet unproven potential to transform the economy.
While many analysts believe AI will usher in a fourth industrial revolution, others are concerned the tech has been vastly overhyped.
Campbell Harvey, an economist at Duke University, said 2026 could be the year that AI and decentralised financial technologies begin to deliver substantial gains to productivity.
“We are at the cusp of technologies like AI being able to very substantially increase productivity,” Harvey told Al Jazeera.
“This means higher growth. We have not seen realisations of this higher growth yet from AI.”
Consumer sentiment
While the US economy is strong on paper, Americans are broadly unhappy with the state of their finances. In fact, consumer sentiment is near record lows.
The University of Michigan’s index of consumer sentiment stood at 53.3 in December, up slightly from the previous month, compared to 50 in June 2022 when inflation was at a four-decade high.
Yet Americans are continuing to spend.
Consumer spending grew 3.5 percent during the July-September quarter, the fastest pace since the final quarter of 2024.
The splurge has shown no signs of slowing down either. Mastercard’s annual report on the Christmas season showed spending up 3.9 percent compared with last year.
The reason for the disconnect between spending and sentiment? The diverging fortunes of wealthy Americans and those of more modest means.
The top 10 percent of earners now account for roughly half of spending, the highest proportion since officials began compiling data in 1989, according to Moody’s Analytics.
Harvey said he would give the economy an overall rating of six out of 10.
“Many believe that the US is stuck in the 2 percent real GDP growth regime. The third quarter showed that higher growth is possible. I think many are too pessimistic. We need more ambition,” he said.
Rolf J Langhammer, a researcher at the Kiel Institute for the World Economy in Germany, said he would rate the economy a six “at best”, noting that the International Monetary Fund had forecast a 2.7 percent growth rate at the start of Trump’s tenure.
“The current strength is visibly lower, around 2 percent only,” Langhammer told Al Jazeera.
US stock market
After wild swings earlier in the year during Trump’s back-and-forth tariff announcements, stocks are finishing out 2025 on a high note.
The benchmark S&P 500 is up nearly 18 percent, easily beating the average annual return of 10.5 percent.
While most Americans own stocks, the gains have disproportionately benefitted wealthier households.
Stock ownership ranges from as high as 87 percent in households earning at least $100,000 per year to as low as 28 percent of households earning less than $50,000, according to Gallup.
Inflation
Despite fears that Trump’s tariffs would fuel inflation, prices have grown at a moderate pace – though still above the US Federal Reserve’s target of 2 percent.
Year-on-year inflation came to 2.7 percent in November, down from 3 percent in September.
While inflation is way down from its recent peak of 9.1 percent in June 2022, when then-President Joe Biden faced a similarly glum public mood over the economy, Americans are still feeling the pinch.
In a PBS News/NPR/Marist poll conducted this month, 70 percent of respondents said the cost of living in their area was unaffordable.
Some economists have also cautioned that the full impact of tariffs may have been delayed by companies that stockpiled imports in anticipation of higher costs.
Langhammer said the jury was out on whether living costs would remain stable in the coming year.
“Front-loading of imports is fading out, and the effects of tariffs on inflation are likely to become more visible in 2026 in addition to the weak dollar,” Langhammer said, noting that the average effective tariff rate, 17 percent, was about five times higher than before Trump took office.
However, Harvey said he believed the tariffs have had a minimal economic impact.
“The US trade sector is very small compared to other countries. Measuring trade intensity as the sum of exports plus imports divided by GDP, the US ranks as one of the least trade-intensive countries in the world,” he said.
“Another way of looking at this is to look at the size of imports relative to GDP, and you’ll see that it’s about 14 percent. This is why I believe that the economic impacts of tariffs are less important than the attention they get in the media.”
Employment
Despite Trump’s pledge to restore the manufacturing glory of the US, unemployment has risen steadily since the start of his second term in January.
The official jobless rate climbed to a four-year high of 4.6 percent in November, up from 4 percent in January.
While Trump has attributed the rise to cuts in government jobs undertaken by billionaire Elon Musk’s Department of Government Efficiency (DOGE), those layoffs account for only a small proportion of the total number of jobless people.
Whereas DOGE cut about 300,000 federal employees, one million more Americans were classified as unemployed in November compared with January, according to the Bureau of Economic Analysis.
