WASHINGTON (AP) — The economy in 2025 was filled with contradictions as growth was healthy Bye hiring has slowed downinflation remained elevated and unemployment increased.
Last year's strange results raise many questions for the year ahead: Will a growing economy eventually be able to boost a sluggish labor market? Or is weak job growth last year a sign of a faltering economy that could get worse?
There's another worrying possibility: the economy could continue to grow without much hiring as technology—especially artificial intelligence—allows more companies to ramp up production of goods and services without adding more workers, leading to “rising unemployment.”
Adding to the complications, the six-week government shutdown last fall disrupted the collection and publication of economic dataleaving the politicians at the Federal Reserve more cloudy view economy that will only slowly clear up this year.
“2026 begins at a time when it is difficult to say how 2025 ended,” Stephen Stanley, chief U.S. economist at investment bank Santander, said in a note to clients.
Sharp inequality also means that wealthier U.S. households account for a growing share of spending, so that even healthy growth figures mask underlying weaknesses among low-income families – what many economists call K-shaped economy.
Still, Stanley, like many economists, is somewhat optimistic: He expects hiring to pick up on the back of stronger growth driven by large tax refunds earlier this year as a result of President Donald Trump's tax cut law. Companies may also step up hiring as they face far less uncertainty from tariffs this year.
This year “could be better,” Federal Reserve Chairman Christopher Waller said last month. “Now, if this pulls the job market along with it, I certainly hope it does.”
Here are five charts that illustrate the economy in 2025 and where it could be headed.
Growth accelerates after slow start
Polls show that Americans have gloomy economic outlookbut that hasn't stopped many of them from spending wisely. Robust consumer spending—likely fueled largely by higher-income Americans—propped up economic growth to 4.3% annual rate in the July-September quarter, it was a much better result than expected and the biggest increase in two years.
The healthy growth followed two quarters in which Trump's tariffs distorted the economy. Rising imports in the first three months of the year led to a contraction in the economy as businesses sought to import products from abroad before the tariffs were introduced.
Growth likely continued in the final three months of the year, but the government shutdown almost certainly weighed on output, cutting growth by one percentage point, economists forecast.
Hiring remained weak and unemployment rose
Even though the economy has picked up, hiring has not picked up—in fact, job growth has slowed since Trump announced sweeping tariffs in early April, which he dubbed “Emancipation Day.”
The economy even lost jobs in June, August and October. Meanwhile, the unemployment rate rose from 4% in January to 4.6% in November, the highest level in four years. December data will be published on January 9.
There were several reasons why hiring likely slowed: Uncertainty over tariffs that Trump imposed and then in some cases lowered, eliminated or delayed caused many companies to pause hiring. However, layoffs remain low despite Labor market “low hiring, low layoffs”.
At the same time, the ongoing adoption of artificial intelligence may have caused many firms to hold off on hiring as they figure out what the new technology can do for them.
“AI, AI, AI, AI is all I've heard since this summer,” Waller said last month, referring to comments he's heard from business leaders explaining why they don't want to create new jobs.
Still, there are signs of improvement: Employers cut 105,000 jobs in October, but that was largely due to significant job losses in the federal government caused by the Trump administration's purge of government workers that only formally took effect this month.
Excluding the government, businesses added an average of 75,000 jobs per month in the three months ended November, up significantly from just 13,000 in the three months ended August.
However, most of the hiring this year has been concentrated in just a few sectors—healthcare, restaurants and hotels, and government (except for October). Most large private enterprises have cut jobs.
Inflation remained consistently high
Although inflation fell sharply in 2023 and 2024 from four-decade highs, there was no improvement last year. Annual inflation, according to the Federal Reserve's preferred measure, has actually reached higher to 2.8% in September – latest available data – from 2.7% in December 2024.
Increased spending has become a major political issue in races as diverse as the gubernatorial races in Virginia and New Jersey and the mayoral race in New York. All of them were won by Democrats as Trump faced the “affordability” issues he talked about. as a “hoax”.
Inflation fell in November, according to the more widely tracked consumer price index, although economists say the numbers were distorted as a result of the government shutdown. Prices were mainly collected in the second half of November, after the end of quarantine, when holiday discounts were most likely in effect.
Some economists fear inflation will worsen in early 2026 as companies adjust prices annually and face more tariff costs. But most expect inflation to continue to fall slowly in 2026 and get closer to the Fed's 2% target.
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This story was first published on January 4, 2026. On January 6, 2026, it was updated to correct Stephen Stanley's title.
Christopher Rugaber, Associated Press
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