Leaving aside the government shutdown, which a third of Americans don’t even know has happened, let’s look at claims that the economy is bad.
The truth is, that’s false. However, for many Americans still reeling from four years of Biden’s massive household price hikes and a struggling labor market, the economy doesn’t feel all that good.
The economy is buzzing
The biggest measure of the economy’s health is the gross domestic product (GDP). This tells us how much economic activity—from buying furniture and cars to selling products overseas—is occurring in the U.S. When GDP is negative, the economy is contracting, but it is expanding when positive. Two back-to-back quarters of negative growth had typically been the definition of a recession, except they claimed otherwise under the Biden administration.
This data point is compiled quarterly by the Bureau of Economic Analysis, and future GDP readings are estimated by the Atlanta Federal Reserve. Let’s take a look at 2025:
Q 1 -0.6%
Q2 3.8%
Q3 3.9% (estimated)
In the first quarter, the GDP fell because the expected tariff policy under the Trump 2.0 Administration pushed companies and retailers to increase imported goods, while exports had a smaller increase, leading to net exports—the largest drag on GDP growth on record. But we never entered a recession, since GDP bounced back to a robust 3.8% in Q2.
Economists admit now that their doom-and-gloom predictions at the start of 2025 were wrong:
The forecast for the past nine months has been that the US economy would slow down. But the reality is that it has simply not happened, see chart below. GDP growth in the second quarter was 3.8%, and the Atlanta Fed predicts that GDP in the third quarter will be 3.9%. Yes, job growth is slowing, but this is the result of slowing immigration.
The bottom line is that the US economy remains remarkably resilient, and it is becoming increasingly difficult to argue that we are still waiting for the delayed negative effects of what happened six months ago on Liberation Day in April.
Consumers aren’t feeling it
Americans are glum over the economy. Consumer sentiment, as measured by the University of Michigan each month, slid five percentage points from last month but is down 21% from one year ago. Inflation is the cause of their persistent heartburn.
Consumers continue to express frustration over the persistence of high prices, with 44% spontaneously mentioning that high prices are eroding their personal finances, the highest reading in a year.
The Consumer Confidence Index, which measures consumer attitudes, buying intentions, vacation plans, and consumer expectations for inflation, stock prices, and interest rates, declined again in September. The source of their angst is the job market.
Stephanie Guichard, senior economist of Global Indicators at The Conference Board, which produces the Consumer Confidence Index, noted:
Consumers’ assessment of business conditions was much less positive than in recent months, while their appraisal of current job availability fell for the ninth straight month to reach a new multiyear low. This is consistent with the decline in job openings.
Job losses that began last year have Americans feeling uncertain. Downward revisions of 2024 growth by nearly one million jobs have been discouraging.
How to solve this problem
We need three things to help Americans feel better about the economy:
- Unbiased information—If only economists were as vocal about their improving expectations for the economy in 2025 as they were at the start of the year. If only business news outlets covered those reassessments, then Americans would hear more about the resilience of the economy.
- Lower prices—Americans are paying over 20% more today than they were four years ago, and they’re tired of high prices. The good news is that the annual average inflation rate is falling back to historically low ranges of between 1 and 2.5% after spiking to 8% in 2022. In 2021, inflation hit 4.7% annually from a low of 1.2% during President Trump’s final year of his first administration. Last year, inflation was 4.1%. We’ve come a long way, but there’s still a way to go.
- Higher wages—The more incomes rise, the more people have in their wallets to serve as a buffer against price increases. Inflation-adjusted wages are already picking up. The Committee to Unleash Prosperity found that “through June inflation-adjusted median household incomes are up about $1,100 per household.”
One other way Americans will see their incomes go farther is through tax cuts. The working families tax cuts passed this year by congressional Republicans (aka the One Big, Beautiful Bill Act) ensured that taxes would not rise by about $2,000 per taxpayer, but made lower rates and tax incentives permanent while eliminating taxes on working-class Americans, such as tips, overtime, and car insurance.
Bottom Line
Americans are understandably glum over high prices, but reckless spending under the Biden Administration shot prices up, and wages could not keep pace, nor did he cut taxes to provide relief.
Thankfully, President Trump and conservatives in Congress have cut taxes, removed onerous regulations that make life more expensive, and increased energy production to lower prices further. Tariffs have yet to be felt by most consumers, as Jerome Powell told us recently. Tax cuts that kick in next year will provide even more financial relief.