As the U.S. economy enters 2026, the report card on its performance becomes complicated.

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

Recent growth has exceeded most analysts’ expectations after a tumultuous year that saw President Donald Trump return to the White House and turn to tariffs and protectionism.

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

However, there are signs of weakness hidden in the economic data, hinting at risks ahead. Crucially, Americans are generally pessimistic about their material conditions.

Here are some key indicators for the U.S. economy as 2025 comes to a close:

GDP growth

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

It was the strongest performance in two years. It is also far ahead of other developed countries in the United States.

In the third quarter, the annualized economic growth rates of the Eurozone and the UK were only 2.3% and 1.3% respectively.

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

The U.S. economy’s growth, while strong, has been driven largely by billions of dollars in artificial intelligence investments led by a handful of tech giants such as Microsoft, Amazon and Alphabet.

It is estimated that by 2025, AI-related spending will account for approximately 40% of all growth.

This means that much depends on AI realizing its as-yet-unproven potential to transform the economy.

While many analysts believe artificial intelligence will usher in the fourth industrial revolution, others worry the technology has been overhyped.

Campbell Harvey, an economist at Duke University, said that 2026 may be the year when artificial intelligence and decentralized financial technology start to significantly improve productivity.

“We are on the cusp of technologies such as artificial intelligence that can significantly increase productivity,” Harvey told Al Jazeera.

“That means higher growth. We haven’t seen that kind of higher growth with AI.”

consumer sentiment

Despite the apparent strength of the U.S. economy, Americans are generally dissatisfied with their financial situation. In fact, consumer confidence is near historic lows.

The University of Michigan’s consumer confidence index was 53.3 in December, up slightly from the previous month and compared with 50 in June 2022 when inflation was at a four-year high.

Yet Americans continue to spend.

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

The splurge shows no signs of slowing down, either. Mastercard’s annual report for the Christmas season showed spending increased by 3.9% compared to last year.

What’s the reason for the disconnect between spending and emotion? There are differences in the fortunes of wealthy Americans and ordinary Americans.

The top 10% of earners now account for about half of spending, the highest share since officials began collecting data in 1989, according to Moody’s Analytics.

Harvey said he would give the economy an overall rating of six out of ten.

“Many people believe that the United States is stuck in a 2% real GDP growth regime. The third quarter showed that higher growth is possible. I think many people 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 rated the economy “a six out of five at best,” noting that the International Monetary Fund (IMF) forecast economic growth of 2.7% at the beginning of Trump’s term.

“The current intensity is significantly lower, only around 2%,” Lanhamer told Al Jazeera.

US stock market

Stocks are set to end 2025 on a high note after experiencing wild swings earlier this year amid Trump’s repeated tariff announcements.

The benchmark S&P 500 index is up nearly 18%, easily beating the average annual return of 10.5%.

Although most Americans own stocks, stock gains disproportionately benefit wealthy households.

According to Gallup, 87% of households with an annual income of at least $100,000 own stocks, and as low as 28% of households with an annual income of less than $50,000.

inflation

Despite concerns that Trump’s tariffs will fuel inflation, prices are growing at a modest pace — but still above the Fed’s 2% target.

Year-on-year inflation was 2.7% in November, down from 3% in September.

Although inflation is well below its recent peak of 9.1% in June 2022, and then-President Joe Biden faced similar public pessimism about the economy, Americans still feel the pinch.

In a PBS News/NPR/Marist poll this month, 70 percent of respondents said the cost of living in their area was unaffordable.

Some economists also warn that companies stockpiling imported products in anticipation of higher costs could delay the full impact of the tariffs.

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

“The front-loading of imports is gradually disappearing, and in addition to a weaker dollar, the impact of tariffs on inflation may become more pronounced in 2026,” Lanhammer said. He noted that the average effective tariff rate is 17%, about five times what it was before Trump took office.

However, Harvey said he believed the economic impact of the tariffs would be minimal.

“The U.S. trade sector is very small compared to other countries. Measuring trade intensity as the sum of exports plus imports divided by gross domestic product, the U.S. ranks as one of the least trade-intensive countries in the world,” he said.

“Another way of looking at this is if you look at the size of imports relative to GDP, you’ll see it’s about 14%. That’s why I think the impact of tariffs on the economy is less important than what the media is focusing on.”

employment

Despite Trump’s pledge to restore American manufacturing to its glory days, unemployment has risen steadily since the start of his second term in January.

The official unemployment rate climbed to 4.6% in November, a four-year high, up from 4% in January.

While Trump attributes the rise in unemployment to government job cuts by billionaire Elon Musk’s Department of Government Efficiency (DOGE), these layoffs represent a small portion of the total job losses.

While DOGE cut about 300,000 federal employees, 1 million more Americans were unemployed in November than in January, according to the Bureau of Economic Analysis.