The U.S. economy entered 2026 on solid footing, with fresh data and forecasts pointing to steady growth despite ongoing challenges from trade policy and labor market shifts. Private-sector forecasters and government analysts are increasingly optimistic about the year ahead, though significant uncertainties remain about how tariffs and rapid technological change will shape business decisions.
Economic growth in the fourth quarter of 2025 came in stronger than initially expected, giving analysts confidence that momentum will carry into this year. The expansion was driven by strong consumer spending, business investment in equipment and artificial intelligence, and solid exports. This resilience matters because it suggests the economy has enough underlying strength to weather the disruptions that businesses say they are navigating.
Background
The U.S. economy has been on a roller coaster ride over the past year. Growth surged in the middle of 2025, with the economy expanding at a 4.4 percent annualized rate in the third quarter, the fastest pace in two years. That strength was driven by consumers continuing to spend, companies investing in new equipment, and a rebound in exports. But employment growth slowed sharply in the second half of the year, raising questions about whether the labor market could sustain the overall economic momentum.
Now, as 2026 begins, the picture has become clearer. The government shutdown that disrupted data collection in late 2025 has made it harder for analysts to read the full picture of fourth-quarter growth, but the numbers that have come in suggest the economy kept expanding at a healthy clip. The Congressional Budget Office estimates that real GDP growth will rise to 2.2 percent in 2026, up from 1.9 percent in 2025.
Businesses, meanwhile, are bracing for a year of significant change. The Trump administration has pursued aggressive tariff policies, and companies are still calculating the full impact on their operations and costs. At the same time, artificial intelligence has moved from a future possibility to an immediate business reality, forcing companies to figure out how to adopt the technology and what it means for their workforce.
Key Details
Growth Forecasts
Forecasters are increasingly bullish about 2026. Goldman Sachs Research projects that the U.S. economy will expand 2.5 percent in 2026 on a fourth-quarter, year-over-year basis, outpacing the consensus economist estimate of 2.1 percent. On a full-year basis, the economy is forecast to grow 2.8 percent.
"Our strongest conviction views for 2026 are our above-consensus GDP growth forecast and our below-consensus inflation forecast. The outlook for the labor market is more uncertain—we expect it to stabilize but see the possibility of further softening as the key risk for 2026." – David Mericle, chief U.S. economist at Goldman Sachs Research
The key driver for this optimism is that analysts expect the drag from tariff increases to give way to a boost from business and personal tax cuts included in the One Big Beautiful Bill Act. Tax cuts, real wage gains, and rising wealth should sustain solid consumer spending growth, while new tax incentives, easier financial conditions, and reduced policy uncertainty should boost business investment.
The Labor Market Challenge
The one area where forecasters express caution is employment. Job growth has slowed significantly. In the fourth quarter of 2025, the economy generated only 79,000 jobs, less than one-fifth the pace of a year earlier. Underlying trend job growth, estimated at 11,000 per month, has fallen below the breakeven rate needed to keep up with labor supply growth.
However, there are early signs that the labor market may be stabilizing. Recent employment reports have shown a small first step toward stabilization, and most forecasters expect the unemployment rate to remain stable around its current level. The question is whether hiring will pick up enough to prevent further deterioration.
Inflation Outlook
Inflation has been moving in the right direction. Annual inflation slowed to 3.69 percent in December, the lowest December reading since 2020. Core inflation, which excludes volatile food and energy prices, eased to 4.33 percent from 4.43 percent, though it remained above the Federal Reserve's 4 percent upper target.
Goldman Sachs Research expects core personal consumption expenditures inflation to fall to 2.1 percent by December 2026, below both consensus estimates and Federal Reserve expectations. This forecast rests on the assumption that the labor market will continue to rebalance and that catch-up inflation will exhaust itself.
What This Means
For businesses, the early 2026 data offers some encouragement but also complexity. Companies can point to solid economic growth and consumer spending as reasons to invest and hire. The tax cuts included in recent legislation are expected to boost both corporate investment and household spending power.
But businesses are also navigating real headwinds. Tariffs remain in place and could increase, creating uncertainty about future costs. The rapid advancement of artificial intelligence means companies must invest in new technology while figuring out how it will change their operations and workforce needs. These competing pressures suggest that business confidence, while improving, remains fragile.
For consumers, the picture is more straightforward. Strong economic growth, stable employment, and lower inflation should support continued spending. Tax refunds are expected to increase, and lower tax withholding rates mean more money in paychecks throughout the year.
The Federal Reserve, which cut interest rates aggressively in 2025, has signaled it will pause rate cuts for now. Officials want to see how the economy performs and how inflation responds to shifts in trade and immigration policy before moving again. Most analysts expect only three rate cuts in 2026, starting in June.
The bottom line is that 2026 is shaping up to be a year of moderate but steady growth, with the main risks coming from policy decisions around tariffs and immigration rather than from fundamental economic weakness. Whether businesses will feel confident enough to hire more aggressively, and whether consumers will continue to spend at current levels, will determine whether the year lives up to the optimistic forecasts now in circulation.
