Where things stand: Government data released this month after shutdown-related delays offer a snapshot of an economy that looks strong on the surface but fragile underneath.
Gross domestic product expanded at a 4.3 percent annual rate in the third quarter, the fastest pace in two years. Solid gains in consumer spending and exports offset a decline in residential and business investment.
But the top-line numbers mask signs of cooling.
Unemployment is rising and inflation remains elevated. Wage growth is easing and households are saving less than they did earlier in the year, suggesting that incomes aren’t keeping pace with rising costs.
“While top level growth of 4.3 percent looks good prima facie, there are some troubling signs when you pop open the hood,” Boston College economist Brian Bethune said in a note.
Still, the probability of recession remains low — 30 percent, according to economists tracked by Bloomberg, down from 40 percent after President Trump rolled out his “Liberation Day” tariffs in April.
Jobs: The labor market has been sluggish and is expected to remain so next year.
Employers added more than a million fewer jobs in the first 11 months of the year than they did last year. That’s despite GDP growth running near its top sustainable pace.
While layoffs have remained relatively tame, an influx of job seekers nudged US unemployment up to 4.6 percent in November, the highest since 2021.
Federal Reserve chair Jerome Powell doesn’t see the jobless rate climbing much further, an assessment shared by most private forecasters.
“We won’t see any kind of a sharper downturn” in employment, he told reporters earlier this month.
The Fed’s optimism stems from its belief that interest rates are now low enough to steady the labor market. (Policymakers have cut their benchmark lending rate by 1.75 percentage points to a range of 3.5–3.75 percent since September 2024.)
Dario Amodei, chief executive and cofounder of AI-maker Anthropic. KARSTEN MORAN/NYTAI: Artificial intelligence promises to reshape the economy, but its impact on workers remains a big unknown.
Products such as ChatGPT and Google Gemini improved dramatically, speeding adoption by businesses and consumers. Spending on AI hardware, software, and data centers accelerated economic growth. And AI exuberance spilled into the stock market, raising concerns that a bubble is about to burst.
More importantly, AI poses the threat of massive job losses. Many firms have already curtailed hiring as they assess how they will deploy the technology. Some have laid off workers in anticipation of more widespread AI use.
“Despite concerns about widespread job losses, AI adoption is expected to have only a modest and relatively temporary impact on employment levels,” Goldman Sachs researchers wrote in an August report.
At the other extreme, Dario Amodei, chief executive of AI-maker Anthropic, has said AI could eliminate half of all entry-level white-collar jobs and push unemployment to 10–20 percent within five years.
“Without intervention, it’s hard to imagine that there won’t be some significant job impact there. And my worry is that it will be broad, and it will be faster than what we’ve seen with previous technology,” Amodei said in an interview that CBS News’ “60 Minutes” aired in November.
US companies are expected to pass along more of the costs of tariffs to their customers in 2026.MAGGIE SHANNON/NYTTariffs: All of this — a cooling labor market and a fast-moving AI transition — is unfolding against the backdrop of disruptive trade policy.
Economists initially warned that Trump’s tariffs — a 10 percent baseline import tax plus rates of up to 40 percent on nearly all US trading partners — would light a fire under inflation or cause a recession. It didn’t happen. The president backed off some tariffs and postponed others, and companies rushed to build up inventories while absorbing some or all of their increased costs.
In 2026, tariffs are expected to be a modest drag on GDP. The Conference Board forecasts that year-over-year growth will slow to 1.3 percent in the fourth quarter of next year, down from 1.7 percent this year.
Tariffs will also keep inflation higher than it would otherwise be as US firms pass on more of their increased costs to customers. In September, the Fed projected that its preferred inflation gauge — which excludes often volatile food and energy costs — would rise 2.6 percent next year, up from a June estimate of 2.4 percent. The central bank’s target is 2 percent.
Final thought: A weak labor market, AI disruption, and tariff headwinds are a recipe for uncertainty but not an imminent recession.
But they may well leave Americans frustrated with a slow-moving economy and high prices, especially if tariffs don’t yield the gains in US jobs that Trump promised. If so, the midterm elections could deliver a harsher-than-usual rebuke to Republicans as the party in power.
Welcome to 2026. Don’t be surprised if it feels a lot like 2025.
Larry Edelman can be reached at larry.edelman@globe.com.