The US economy beat expectations to grow at 4.3% in the July-September quarter, but the real state of the economy is complicated as consumer confidence has continued to fall, unemployment has surged, and growth appears to be fuelled by wealthier households and artificial intelligence (AI) boom alone.
The US economy beat expectations to grow at 4.3 per cent in the July-September quarter, but the real state the economy is complicated as consumer sentiment has continued to fall, unemployment has surged, and growth appears to be concentrated among the wealthiest quarters of the country.
In any case, analysts have flagged that the third quarter’s growth is a backward-looking indicator as it shows the picture of the three months ending in September and does not represent the current state of the economy. Currently, nearly every indicator is in the red.
As per the latest data, the unemployment has risen to the highest level in four years to 4.6 per cent, inflation remained above the Federal Reserve’s upper limit of 2 per cent target at 2.7 per cent, and consumer sentiment plunged to levels comparable to the 2008 financial crisis.
Analysts have said that certain aspects of the economy, such as employment, are already in recession and there is a greater risk of a downturn in 2026.
“The US economy is in a hiring recession. Almost no jobs have been added since April. Wage gains are slowing. 710,000 more people are unemployed now compared with November 2024,” said Heather Long, Chief Economist at Navy Federal Credit Union, on X.
Plunging consumer sentiment, unequal growth
University of Michigan’s consumer sentiment index plunged to around 52.9 in December, nearly 28.5 per cent lower than a year ago — levels comparable to the 2008 financial crisis.
As per the Conference Board, consumer confidence fell 3.8 points lower in December to reach 89.1 sliding lower — for the fifth month in a row.
Based on the data, consumers’ take on current business and labour market conditions also dropped compared to November, while their short-term outlook remained below the level that signals a recession ahead for the 11th consecutive month, according to Yahoo Finance.
As a result, Americans should not be overexcited about the GDP numbers, according to Yelena Shulyatyeva, senior US economist at The Conference Board.
“There’s a big contrast between the actual data, which is lagged, and the more forward-looking index of consumer confidence,” said Shulyatyeva, as per Yahoo.
Moreover, the economic growth even for the July-September quarter has been highly unequal, according to The New York Times.
Lower-income families are stuck with slowing wage growth and rising costs of various household goods, like beef, coffee, and furniture, and much of the consumption-led growth has been drive by wealthier households that have been spending on travel, recreation, restaurants and other discretionary purchases, according to The Times.
Separately, analysts have said that most of the industrial growth has been driven by artificial intelligence (AI) investments and spending alone. Such a overrepresentation of one sector in growth suggests economic activity is unequal even among businesses.
Private fixed investment has risen in the US economy ”only due to AI-related spending”, according to a note from Pantheon Macroeconomics carried by Fortune.
Separately, analyst Oliver Allen said in a note cited by Fortune that capital expenditure “remain depressed, suggesting investment outside of AI-linked sectors remains weak”.
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