2025 was messy — the U.S. economy still grew

The U.S. economy closed 2025 with far more momentum than most forecasters anticipated, underscoring the resilience of domestic demand in the face of political turbulence and global headwinds.

Gross domestic product is expected to have expanded at an annualized pace of roughly 2.5% in the fourth quarter, according to economists surveyed by The Wall Street Journal. If confirmed, that would leave full-year growth close to the same mark — extending a streak of five consecutive years of above-average expansion.

That outcome would represent a sharp upside surprise. As recently as last spring, many economists — and even the Federal Reserve — projected growth slowing to around 1.5% or lower in 2025, following a 2.8% expansion in 2024.

Growth amid policy shocks

The stronger-than-expected performance came despite a year of significant disruption.

President Donald Trump returned to office, raised tariffs on key trading partners, tightened immigration enforcement and oversaw the elimination of tens of thousands of federal jobs. The labor market cooled noticeably, with hiring slowing and net job gains narrowing.

Yet the economy continued to expand at a solid pace for two primary reasons: resilient consumer spending and a surge in business investment tied to artificial intelligence.

Households kept spending at a surprisingly firm clip. Although hiring lost momentum, layoffs remained historically low, providing income stability and bolstering consumer confidence. Wealthier households in particular increased discretionary spending, supported by record equity markets and rising home values. Lower-income households faced more strain but did not retrench enough to derail aggregate demand.

AI boom offsets tariff drag

On the corporate side, capital spending on artificial intelligence accelerated sharply. Businesses poured hundreds of billions of dollars into data centers, chips, automation and digital infrastructure.

Oxford Economics estimates that AI-related investment alone contributed roughly 0.4 percentage point to GDP growth in 2025 — offsetting much of the drag created by higher tariffs and trade frictions.

That investment wave intensified toward year-end and is widely expected to continue into 2026, suggesting the AI cycle remains a structural growth driver rather than a temporary spike.

2026 outlook: tailwinds and risks

Policy shifts are also expected to support activity this year. The administration has scaled back some tariffs, enacted tax cuts and increased fiscal spending in an election cycle, measures that could further underpin growth in 2026.

Still, there are warning signs.

Consumer spending may have softened in the fourth quarter as households dipped into savings and relied more heavily on credit — trends that are not indefinitely sustainable. Rising debt burdens and thinner financial cushions could temper momentum later in the year.

The 43-day government shutdown last fall may also weigh modestly on fourth-quarter GDP, though economists expect that effect to be temporary.

Trade flows and inventory swings add additional volatility. A widening trade deficit or fluctuations in unsold goods can amplify quarterly GDP moves without necessarily signaling changes in underlying economic health.

The real drivers

Strip away the noise and two pillars continue to define the trajectory of the U.S. economy: consumer demand and business investment.

As long as households keep spending and companies continue deploying capital — particularly in high-productivity areas such as AI — the expansion can persist even in a volatile political and policy environment.

The final GDP print will provide the official scorecard for 2025. But the broader message is already clear: the U.S. economy proved more adaptable and durable than forecasters expected, setting a stronger-than-anticipated starting point for 2026.