Is the American economy strong by 2026? The picture is complicated | Economic and commercial news

As the U.S. economy heads toward 2026, the assessment of its performance is complicated.

In many ways, the world’s largest economy appears to be in a position of strength.

After a tumultuous year marked by President Donald Trump’s return to the White House and his shift toward tariffs and protectionism, recent growth has exceeded most analysts’ expectations.

In a speech this month, Trump praised his economic record, insisting that the United States was on the cusp of an economic boom “like the world has never seen.”

Yet economic data reveals signs of weakness that point to long-term risks. And above all, Americans are largely pessimistic about their material situation.

Here are some of the key indicators for the US economy as we approach the end of 2025:

GDP growth

After a modest expansion in the first half of 2025, gross domestic product (GDP) growth exceeded expectations in the July-September quarter to reach an annualized rate of 4.3%.

This is the best performance in two years. It was also well ahead of other developed countries in the United States.

In the third quarter, the Eurozone and UK economies grew by just 2.3% and 1.3% respectively, on an annualized basis.

Japan, the world’s fourth-largest economy, contracted 2.3 percent during the period.

While robust, growth in the U.S. economy has been largely driven by multibillion-dollar investments in artificial intelligence led by a handful of tech giants, including Microsoft, Amazon and Alphabet.

According to some estimates, AI spending accounted for around 40% of total growth in 2025.

This means that much depends on whether AI can realize its as yet unproven potential to transform the economy.

While many analysts believe AI will usher in a fourth industrial revolution, others fear the technology has been vastly overrated.

Campbell Harvey, an economist at Duke University, said 2026 could be the year when AI and decentralized financial technologies begin to drive substantial gains in productivity.

“We are at the cusp of technologies like AI that can dramatically increase productivity,” Harvey told Al Jazeera.

“That means higher growth. We haven’t seen that higher growth come about through AI yet.”

Consumer sentiment

Even though the U.S. economy is strong on paper, Americans are generally unhappy with the state of their finances. In fact, consumer confidence is near an all-time low.

The University of Michigan’s consumer confidence index stood at 53.3 in December, up slightly from the previous month, compared to 50 in June 2022, when inflation was at its highest level in four decades.

Yet Americans continue to spend.

Consumer spending rose 3.5% in the July-September quarter, the fastest pace since the final quarter of 2024.

This madness has shown no signs of slowing down either. Mastercard’s annual Christmas report shows spending up 3.9 percent from last year.

The reason for the disconnect between spending and sentiment? The diverging fortunes of wealthy Americans and those of more modest means.

The richest 10% of earners now account for about 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 a six out of 10 overall.

“Many think the United States is stuck in a 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 give the economy a rating of “at best” six, noting that the International Monetary Fund had forecast a growth rate of 2.7% at the start of Trump’s term.

“The current force is visibly lower, only about 2 percent,” Langhammer told Al Jazeera.

American stock market

After wild swings earlier in the year during Trump’s tariff announcements, stocks are ending 2025 on a high note.

The benchmark S&P 500 is up nearly 18 percent, easily outpacing the average annual return of 10.5 percent.

Even though most Americans own stocks, the gains have disproportionately benefited wealthier households.

Stock ownership ranges from 87 percent in households earning at least $100,000 a year to 28 percent in households earning less than $50,000, according to Gallup.

Inflation

Despite concerns that Trump’s tariffs would fuel inflation, prices rose at a moderate pace – although still above the 2% target set by the US Federal Reserve.

Year-on-year inflation rose to 2.7 percent in November, up from 3 percent in September.

While inflation is well down from its recent peak of 9.1% reached in June 2022, when then-President Joe Biden faced a similarly gloomy public mood toward the economy, Americans are still feeling the effects.

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 warned that the full impact of the tariffs may have been delayed by businesses stockpiling imports in anticipation of higher costs.

Langhammer said the jury is out on whether the cost of living will remain stable in the coming year.

“Anticipated imports are fading and the effects of tariffs on inflation will likely become more visible in 2026, in addition to dollar weakness,” Langhammer said, noting that the average effective tariff rate, 17%, is about five times higher than before Trump took office.

However, Harvey said he believes the tariffs have had minimal economic impact.

“The U.S. trade sector is very small compared to other countries. Measuring trade intensity as the sum of exports and imports divided by GDP, the United States ranks among the least trade-intensive countries in the world,” he said.

“Another way to look at it is to look at the size of imports relative to GDP, and you’ll see it’s about 14 percent. That’s why I think the economic impacts of tariffs are less important than the attention they get in the media.”

Job

Despite Trump’s pledge to restore America’s manufacturing glory, unemployment has continued to rise since his second term began in January.

The official unemployment rate rose to 4.6 percent in November, its highest level in four years, from 4 percent in January.

Although Trump attributed the increase to government job cuts undertaken by billionaire Elon Musk’s Department of Government Efficiency (DOGE), those layoffs represent only a small proportion of the total number of unemployed workers.

While DOGE cut about 300,000 federal employees, a million more Americans were classified as unemployed in November compared to January, according to the Bureau of Economic Analysis.