As 2026 begins, an Associated Press analysis says the U.S. economy ended 2025 with contradictions: growth remained healthy while hiring slowed, inflation stayed elevated, and unemployment rose.
The AP said “2026 begins at a time when it is hard to say how 2025 ended,” citing a note from Stephen Stanley, chief U.S. economist at Santander. The article also pointed to a six-week government shutdown last fall that disrupted the collection and publication of economic data, leaving policymakers with a cloudier view of the economy going into this year.
One issue complicating the outlook for 2026 is how economic momentum could show up across the labor market. The AP raised an “uncomfortable possibility” that the economy could keep growing without much hiring if technology—particularly artificial intelligence—helps firms produce goods and services without adding more workers, a pattern some call “jobless expansion.”
Another complication is distribution. The AP said sharp inequality meant wealthier households accounted for a rising share of spending, so even growth figures that look solid can mask weaker conditions for lower-income families, a pattern described as a “K-shaped” economy.
The AP’s first chart describes growth. It said solid consumer spending helped lift growth to a 4.3% annual pace in the July-September quarter, describing it as the biggest increase in two years. It also said this improvement followed two quarters where Trump’s tariffs distorted the economy, including a surge in imports in the first three months that led the economy to shrink as businesses brought products from overseas ahead of duties.
In addition, the AP said growth likely continued in the final three months, but the government shutdown almost certainly weighed on output and reduced growth by one percentage point, based on economists’ forecasts. The article said Americans’ spending outlook was gloomy in surveys but spending remained at a healthy clip, likely fueled mostly by higher-income Americans.
The AP’s second chart covers the labor market. It said hiring stayed weak and that unemployment rose, including job gains weakening after Trump’s announcement of sweeping tariffs in early April that he dubbed “Liberation Day.” The article said the economy even shed jobs in June, August and October.
The AP reported that the unemployment rate rose from 4% in January to 4.6% in November, with December figures scheduled for release Jan. 9. It said hiring likely slowed as companies weighed tariff uncertainty—sometimes imposed, then in some cases lowered or removed, or delayed—prompting them to put hiring on hold, even as layoffs stayed low in what it described as a “low-hire, low-fire” job market.
The AP also linked the hiring lull to the spread of artificial intelligence in the private sector. It said the ongoing adoption of AI may have led firms to hold off on adding workers as they sort out what the technology can do for them, and it quoted Federal Reserve governor Christopher Waller saying: “AI, AI, AI, AI — that is all I have heard since this summer,” referring to remarks he said he had heard from business executives.
Still, the AP said there were signs of improvement. It reported that employers cut 105,000 jobs in October, attributing most of that decline to a drop in federal government jobs tied to the Trump administration’s purge of government workers, which the article said did not formally take effect until that month. Excluding government, the AP said businesses added an average of 75,000 jobs a month in the three months ended in November, compared with 13,000 jobs a month in the three months ending in August, and it said most private hiring was concentrated in health care, restaurants and hotels, and government outside of October.
The AP’s third chart focuses on inflation. It said inflation, measured by the Federal Reserve’s preferred measure, ticked higher to 2.8% in September from 2.7% in December 2024, describing limited progress after declines in 2023 and 2024 from a four-decade high. It also said elevated costs became a political issue in contests including governor’s races in Virginia and New Jersey and New York City’s mayoral race, all won by Democrats, and noted that it was in that context that Trump referred to “affordability” as a “hoax.”
For November, the AP said inflation cooled according to the consumer price index, but economists said the numbers were distorted by the government shutdown. It said prices were mostly collected in the second half of November after the shutdown ended, when holiday discounts were more likely to be in effect.
The AP concluded with competing views about early 2026. It said some economists worry inflation could worsen as companies implement annual price changes and pass through more tariff costs, while most economists expect inflation to continue to slowly cool in 2026 and move closer to the Fed’s 2% target.
In remarks highlighted by the AP, Federal Reserve governor Christopher Waller also expressed hope for the labor market, saying, “could turn out to be a better year,” and adding: “Now whether that pulls the labor market along with it, I certainly hope it does.” The AP reported that Stephen Stanley, citing large tax refunds tied to Trump’s tax cut legislation, expected hiring could pick up early in 2026 if growth strengthens, and that companies might step up hiring because they face less uncertainty this year from tariffs.