Trump’s “Economic Golden Age” is well under way, having been ushered in during the “greatest first year in history” of the world’s “hottest economy.” Beyond all the rhetoric of superlatives, it is worth standing back and taking an objective look at the world’s largest economy as it enters its second year under the second Trump administration, allegedly freed from the “economic pain” inflicted under the Biden administration.
The American economy has proved resilient, continuing to grow despite an erratic foreign trade policy and rising international geopolitical tensions. Real GDP increased at an annual rate of 4.4% in Q3 (July, August, September) of 2025, as a result of increases in consumer spending, government spending, exports, and investment. GDP growth has been driven in particular by major capital investments in AI, including massive data centres, by the tech giants.
The labour market is stabilising, despite a fall in job openings last year, which was accompanied by an increase in claims for unemployment benefits. A total of just 181,000 new jobs was added in 2025. This year, things appear to be picking up. According to Bureau of Labor Statistics (BLS), non-farm payroll employment surged by 130,000 in January 2026, while the unemployment rate “changed little” at 4.3%. Most of the new jobs were in healthcare, social assistance, and construction-sectors which have a preponderance of low-wage and low-productivity jobs. The gains were offset by 108, 435 job cuts by US-based employers in January, the highest total since January 2009, with Amazon and UPS among the firms responsible for major lay-offs. On the other hand, federal government job losses, the result of enforced lay-offs to reduce the size of the bureaucracy, have amounted to 277,000 in 2025. The impacts of mass deportations on the supply of labour to migrant-dependent sectors, including agriculture, food processing, construction, child and health care, have yet to kick in.
Inflation is slowing, as the Consumer Price Index (CPI) approaches the Federal Reserve’s target of a 2% annual increase. The BLS reported a 0.2% rise (in place of the predicted 0.3%) from the previous month in the ‘CPI for All Urban Consumers’ in January, and a 2.4% rise (in place of the predicted 2.5%) over the preceding 12 months. Core CPI, which excludes volatile energy and food prices, rose 0.3% in January, and 2.5% over the previous year. Overall, it is a significant turn-around since inflation peaked at 9.1% in June 2022. As inflation falls, interest rates may be lowered by the Federal Reserve, although it may equally choose to hold back for the moment and await the inflationary effects of tariffs.
The stock market has reached record highs, courtesy of AI-driven tech stocks and to the undisguised delight of President Trump. The Dow Jones Industrial Average (DJIA) crossed 50,000 points for the first time on 6 February, closing at 50,115.67. The top 10% of America’s population are the main beneficiaries of gains in the stock markets. Stock prices are theoretically meant to incorporate all available information as per the efficient-market hypothesis. Stocks appear, however, to have been overvalued through investor sentiment which sees AI as a driver of growth and productivity, even though worthwhile returns on heavy capital investment in this sector cannot be guaranteed. Some even see the makings of a stock market bubble that is likely to burst, with disastrous consequences, in the near future. Meanwhile, lower retail sales and a weak housing market have caused US Treasury yields to fall, disincentivising foreign investors to take on long-term US debt at a time when confidence in the American economy is at an all-time low. The reduced demand for dollar assets will inevitably have a negative impact, with increased borrowing costs for the US government, corporations, and mortgage markets.
President Trump is, somewhat prematurely, claiming credit for reducing America’s trade deficit, already on a downward trend, by his imposition of tariffs. The goods and services deficit actually rebounded to $56.8 billion in November 2025, up by $27.6 billion from $29.2 billion in October, reflecting a sharp rise in imports.
The US economy has some inherent weaknesses. The total US federal debt stands at $37.64 trillion, with a debt-to-GDP ratio of 124%. Interest payments on the debt are projected to rise to $1 trillion in 2026. The fiscal deficit was $1.776 trillion in 2025, and is also predicted to increase in 2026. Consumer confidence is falling, as debt-ridden households start to curtail their spending. A February 6-9 Economist/YouGov poll of American voters showed that Trump’s lowest approval rating was for his performance on inflation. The supposed beneficial impacts of tariffs, which tend to be delayed after a lag period, have yet to be fully realised. More than 90% of the economic impact of tariffs, which increased the average tariff rate on US imports from 2.6% to 13% in 2025, has been borne by US firms and consumers. US firms appear to have absorbed the bulk of tariffs instead of passing them on to consumers. With the depletion of stockpiled inventories, consumers are likely to pick up the price of pricier imports. Global supply chains have been disrupted, to the detriment of the US and to the advantage of China’s economy, while many trading partners are seeking alternatives to marketing their products in America. Tariffs have also had a detrimental effect on US manufacturing by increasing the costs of the capital equipment and intermediate goods required to produce finished goods.
The report card for the US economy reveals a mixed performance. Aggregate macroeconomic indicators are doing well, while at a microeconomic level high costs of food and beverages (beef, groceries, coffee, etc), medicines, healthcare, child care, and housing, coupled with crippling credit card debt- to a total of $1.28 trillion- are inflicting pain on low- and medium-income consumers held back by stagnating wages. Big Corporations, Big Tech, and the top 1% of Americans have little to complain about. Those caught up in the affordability crisis have to hope that Trump’s many proposals, including a one-year cap on credit card interest payments to 10%, the launch of TrumpRx to provide low-cost medicines, and a housing policy that pits Wall Street against Main Street, may go some way to help. The measures suggested are, however, controversial, incomplete, and untested, and do not sufficiently address the root causes of the problems they are meant to address.
Economic forecasting can at best be a mug’s game, especially when trying to predict the trajectory of the US economy in 2026. We will have to stay calm and patient, and just wait and see as things unravel.
Ashis Banerjee