The US economy surprised yet again by posting a strong growth in the third quarter of this year. Higher consumer spending, increased corporate investments in artificial intelligence, larger government defence spending, and higher exports, along with lower imports, fueled growth.
Mint looks at how the world’s largest economy has defied expectations and stayed resilient in 2025 despite multiple challenges. Will this dream run continue in 2026?
Another strong show by the US economy?
Yes. According to data released by the Federal Bureau of Economic Analysis, the US economy grew by 4.3% in the third quarter—the fastest pace in nearly two years. This is 130 basis points more than the 3% growth that experts had projected. In the second quarter, the US economy grew by 3.8%. Overall growth in the first three quarters of this year is 2.5%.
Strong consumer spending, higher corporate artificial intelligence investments, larger defence spending by the government, higher exports and lower imports ensured the US gross domestic product rose sharply in the third quarter.
What were the initial expectations?
After Donald Trump returned as the President of the US in January and unleashed his tariff war and the fight against illegal immigration, the general expectation was that the US economy would slip into a recession.
The high tariffs would cause prices to rise in the largely import-dependent economy, leading to runaway inflation, which in turn would force the Federal Reserve to increase interest rates.
Large-scale deportation of illegal migrants would create a labour shortage in select sectors such as agriculture and push up wage costs sharply. All these, experts warned, would cause economic growth to stall and slip into recession.
Did these threats materialize?
No. There has been no runaway inflation. This is because Trump has either rolled back or exempted many critical products from his steep tariffs. Inflation remains at near 3% levels only.
Though the US Department of Homeland Security claimed that 2.5 million illegal immigrants have left the US both through enforcement and voluntary action, the wage spiral has not happened. The stock markets in the US are also at their all-time high.
But all is not well?
The US is witnessing a K-shaped economy. While the rich are contributing to consumer spending, the middle and lower-income people are facing an affordability crisis created by the higher cost of living and a weaker labour market.
The rising inflation has hurt consumer sentiment, and retail sales are beginning to stall. The unemployment rate at 4.6% in November is the highest since September 2021. This has put the Federal Reserve in a bind. If it cuts interest rates further in a bid to boost employment, there is a risk of inflation spiralling out of control.
So, what is the outlook for 2026?
Experts say, despite some pain points, the US economy remains on a strong footing as it enters 2026. The corporate sector continues to do well and invest heavily, especially in the artificial intelligence space.
That said, the economy will benefit from the tax cuts the Trump administration has announced (they will come into force in 2026) and the cascading effect of the loosened monetary policy.
The Federal Reserve has cut rates by 75 basis points since September. The International Monetary Fund has estimated the US economy to grow at 2% in 2025 and 2.1% in 2026.