It's Almost 2026. How’s the Economy?

It's almost the end of the year, which gets a nerd like me thinking, how did the economy do this year? Fortunately, I know some people who know things.

We have a Wall Street Journal economic dream team here. So could each of you introduce yourselves?

Sure. I'm Jean Waitlin.
I'm an economics reporter for the Wall Street Journal in Chicago. I'm Justin Leahart.
I'm an economics reporter in New York.

I'm Rachel Wolfe, an economics reporter focused on consumers and based in New Orleans. And if you could summarize the state of the economy right now in a single word, what would it be? Uncertain.

Meh.

Meh.

All right, Rachel. Top uncertain and meh.
Asymmetrical.

Based on those answers, uncertain, meh, and asymmetrical, I'm starting to get the impression that you guys think it's not such a great economy right now.

It really depends where you're sitting. For older people, for people with more savings who own their homes, it's a great time.
The value of their homes has gone way up.

The value of their 401ks has really soared incredibly over the last few years.

But people on the lower end of the scale, things for them are looking worse. So that's the old, what economists sometimes call the K-shaped economy.
So it really depends where you're sitting.

And young people in particular are having a tougher time in the job market. And we know that they've been priced out of home ownership.

And so we're seeing a lot of frustration, especially among people in their 20s and early 30s.

It's very, very confusing. It doesn't look like it's a recession right now, but it's not going great guns.

And we know that people's views of the economy, you know, generally are really, you know, strikingly bad.

Welcome to The Journal, our show about money, business, and power. I'm Ryan Knutson.
It's Friday, December 19th.

Coming up on the show, a 2025 economy health check.

This episode is brought to you by U.S. Bank.
They don't just cheer you on, they help every move count.

With U.S. Bank's smartly checking and savings account to help track your spending and grow your savings, your finances can go further.

Because when you have the right partner on your side, there's no limit to what you can achieve. That's the power of us.
Visit U.S.Bank.com today to learn more. Copyright 2025, U.S.
Bank.

This episode is brought to you by PayPal. Now, through December 8th, you can get 20% cash back when you pay in four with PayPal.
No fees, no interest.

This limited-time offer is perfect for the Black Friday and Cyber Monday deals you've been eyeing.

Whether it's the must-have book or a tiered cheese board, PayPal helps you make the most of your money. Save the offer in the app now.
Expires 1208, cpaypal.com/slash promo terms. Subject to approval.

Learn more at paypal.com/slash payin4. Paypal Inc., NMLS 910457.

All right, let's start with tariffs. The Trump administration imposed massive tariffs in the spring and said that it would lead to a manufacturing renaissance.

And critics, meanwhile, worried that it could lead to increased inflation and slow down the economy. So we are now eight months in from when Trump announced these back in April.

Gene, what have the effects actually been so far?

I mean, the effects have been far more mild so far than many economists and consumers were expecting. I think everyone thought when Trump started really hiking tariffs up very quickly in his term

that we were going to have runaway inflation, we were going to have even goods shortages over the summer.

What we've actually seen, while the effective tariff rate overall is quite a bit higher now than it was at the beginning of the year, still that hasn't fed through to prices as much as everyone was expecting.

Why? Why is that? I mean, there are a lot of theories. One is that, first of all, Trump has rolled back some of the tariffs, right?

He ratcheted them way up on China and then brought them back down and then ratcheted them up again and brought them back down. The administration has exempted some goods from paying the tariffs.

So they're not quite as broad brush as initially feared.

And then a lot of companies have found workarounds. They are, instead of importing things directly from China, their Chinese suppliers are sort of routing them through Southeast Asian countries.

So those things have helped keep

the effects on price increases down a little bit.

That leads me to my next question though, which is one of the aims of the Trump administration by imposing these tariffs was to bring jobs back to the U.S.

It sounds like by routing goods from China through other countries to kind of get around the tariff, it's like not probably achieving that objective. It's not.
No.

I have not seen evidence of broad reshoring, not in such enormous quantities that we've seen the revival of U.S. manufacturing in the way that the Trump administration has promised.

No, I mean, in fact, the U.S. has been losing manufacturing jobs this year.
Still, despite this.

Despite this. I mean, think about it.
I mean, first thing,

you can't just like change on a dime and create a factory, right? That takes a long time.

And also just the uncertainty about these tariffs for a company to commit one way or the other to build things out

based on tariffs that possibly, you know, in a, in a new administration in three years from now, right, could go away, right? And then where are you? It feels a little bit like the boy who cried wolf.

I don't know if President Trump is the boy or economics reporters are the boy for saying it was going to be really bad and then it turned out not to be that bad.

As Gene said a minute ago, economists were worried that tariffs could lead to higher inflation. But as of now, it hasn't had a huge impact.

Tariffs did start bumping up inflation over the summer, but the latest numbers from November show that inflation has gone down to 2.7% from 3% in September, though that number could be distorted due to the recent government shutdown.

And the Fed has actually cut interest rates three times this year, which shows the Fed is less concerned about inflation than it was several years ago.

But even though the rate of inflation has slowed, things are still more expensive than they were. And consumers are fuming about it.
People notice the prices of things that go up a lot.

And they don't notice it so much when they go down, right? So like egg prices went up a ton and then egg prices went down.

And we were still getting emails from people complaining about the high price of eggs, right? It's just, it's just, you know, once you see it, you just remember it and

it's, it's hard to forget it.

The people just, they're so ticked off about prices now.

Another area of confusion in the economy, the labor market. Earlier this week, the government released the latest unemployment rate.
It had risen to 4.6%,

which is the highest level in about four years.

But here again, the data might be off.

Last week, Fed Chair Jerome Powell said official statistics could be drastically overstating recent hiring. Payroll jobs averaging 40,000 per month since April.

We think there's an overstatement in these numbers by about 60,000. So that would be negative 20,000 per month.

The reason they might be overstated is a bit complicated, but it has to do with the way the government gathers the data.

In the labor market right now, which areas are growing and which areas are contracting? Do we have a sense of that? It's pretty much

healthcare and social assistance is growing and everything else is kind of dead and water shrinking lately.

Is there any sort of broad theory as to why

things are shrinking? I mean, I've seen a lot of headlines. We've covered this a bit on the podcast, that CEOs are saying we can be more efficient.
And, you know, AI is

creating all these productivity gains. We don't need so many workers anymore.
AI isn't necessarily like replacing a lot of jobs already, but I think that a lot of CEOs

believe deeply in what AI could mean for their workforce.

And that makes them more willing to let people go and maybe less willing to bring a bunch of people on because they think, well, you know, any sort of shortages that I might face in the future, well, maybe AI will take care of them.

Well, I think we also know that employers are blaming AI for a lot of layoffs that may or may not actually be due to AI. Richard, you spend a lot of time talking with employees.

How would you say generally they're feeling? There's just kind of been a growing distrust between employees and employers.

You see that in the fact that people just don't stay at their jobs for as long as they used to in previous generations.

We're also seeing young people are just approaching work really differently from from past generations.

If they're not planning to have kids, they maybe feel like money takes on a different meaning if you're not worried about paying for a child's college education.

And so I think that we're seeing a really big shift in the labor market in general.

Say more about that growing distrust that you mentioned.

My colleague Rachel Anson had a story about kind of the age of anxiety for white-collar workers, for people just a little bit less certain that their job will be there tomorrow, even though unemployment rates are still relatively low.

There's just kind of been a breakdown in, I think, the idea of to what do we owe our employers and what do our employers owe us. So it's a little bit of a vibes story.

Yeah, I mean, it's, it's like things are

awful for workers right now.

Again, you know, the unemployment rate isn't terrible, but when you compare it to a few years ago, when we were all where the whole market had job offers left and right, where people were getting raises left and right, where everybody was moving and moving up.

And things look very different now. They've come back down more to earth and are kind of drifting more in a slightly more worrying direction.

Just as Risha was saying, it's a vibes thing in the sense that people are comparing things to how it was a few years ago when the job market was on fire.

During the great resignation, when it seemed like everybody was like, I'm out of here. And then companies were just fighting over the remaining workers.

i think we should bring up the another thing that's going on um which is that you know there have been some big layoff announcements but really you know there aren't a lot of layoffs and there's not a lot of hiring so this low hire low fire environment does different things for different people so people who are older who are comfortable in their job they're not worried right because there's not a lot of firing going on but people who switch jobs more frequently um so a lot of lower income people will switch jobs more frequently.

They're having a very hard time because you can't switch as often.

Rachel, how is the job market looking for new grads? Yeah. So we know that one of the weakest spots in the job market is recent grads.
That while unemployment remains

relatively low on the whole, it's really increased among the youngest workers. And that matters because it can set people back long term.

It really can affect people's future earnings if they aren't able to get a job out of college, out of high school.

Yeah, and like the experience of looking now, I think is also discouraging them so much more than would have been the case five years ago.

It's not just that there are fewer jobs out there for them to apply for. It's that A lot of the process has been automated.

And so I wrote recently about some young people who are experiencing what's called a one-way interview, which I had never heard of, but apparently me either.

The company will, you as the applicant, talk to a screen, you talk to a computer that is showing you questions in writing and you answer and record your answers, but there's no human on the other side of the interaction.

But like, does somebody on the other side watch the video or does like AI summarize it and say

this person had great answers? Good question. I don't know.
I assumed someone on the other side, a human, was watching it, but maybe not.

I mean, so much of it now is automated that young people think about it as, well, let's just throw out 300 applications today through Indeed and whatever other sites because it's just a game now and they never have contact with a hiring manager or a human.

And so that also feels very soulless and discouraging for them.

But there has been a big bright spot in the economy.

Seems nothing can hold back the bulls on Wall Street. U.S.
markets markets setting record after record high. In the past three years, the tech having

you by Ericsson. America relies on secure mobile networks.
Across all 50 states, America's mobile networks rely on Ericsson.

For over 120 years, Ericsson has been connecting Americans and now the majority of U.S. mobile network traffic runs through Ericsson equipment.

These networks are built in Texas and are powering American innovation and growth. Ericsson, what America's mobile networks are made of.
Learn more at ericsson.com slash USA.

Are you a forward thinker? Then you need an HR and finance platform that thinks like you do.

Workday is the AI platform that helps propel your organization, your workforce, and your industry into the future. Workday, moving business forever forward.

The stock market has done really well this year.

We are on track for another record close here on Wall Street. Well, AI is certainly the investment theme of the last few years, right? NVIDIA has become the first company to be worth $5 trillion.

The NASDAQ is up about 15% this year, thanks in large part to just seven tech companies.

The so-called magnificent seven make up nearly 30% of the S ⁇ P's market value, and gains from just those companies, which include Microsoft and Apple, have accounted for more than 60% of returns over the last 12 months.

So how do you make sense of this just up and to the right? in the stock market amid uncertainty in the economy. We know that people who own stocks are feeling really good about the economy.
And so

the growth has been so good that that's really not only changing stock owners' economic mood, it's also prompting more people to get into the stock market.

It almost feels like the stock market is becoming like an economy unto itself.

So many people are investing in it and so many people continue to invest in it and they're making so much money that they're putting back in the stock market that it's just becoming this like self-sustaining beast.

Yeah, it's so so interesting. But we do know that people's performance in the stock market drives their spending outside of it.

So it is related in that way, that even if people aren't cashing out their stocks to spend money, some of them are.

But even if they're not doing that, it makes them more willing to spend otherwise because they're like, look, I'm doing well.

People are kind of using it as their savings accounts. Right.
It's become a force that actually can like propel economic activity just by the fact that it's like continuing to be positive. Exactly.

And I think that that's part of what's driving more resilience in consumer spending than a lot of people had expected.

I heard that recently from a real estate agent when I was writing about housing on the North Shore of Chicago, you know, really high-end housing above $4 million, just that

she felt she was seeing more people bidding. a lot on houses partly because their stock portfolios were doing so well and it gave them a lot of confidence to go out and spend.

Another economic indicator that is strong, consumer spending. The National Retail Federation is expecting consumers will spend more than a trillion dollars this holiday season.
Ho, ho, ho.

But the caveat here is that the bulk of consumer spending is coming from a small group of people at the very top of the economic ladder.

So they comprise an outsized share of economic spending and an increasingly large share, which is part of the growing inequality that we're seeing.

And so we're seeing more companies target their services specifically to wealthy consumers. They're realizing that actually we don't need to appeal to everybody.

There's no kind of mass middle class anymore. We're seeing this like premietization of products, services, airplane seats.
And is that something that is an unstoppable force?

Or like, could there be one little speed bump that like derails all of that spending?

Well, all in the stock market. Stock market turning down.
Yeah.

I mean, everyone's worried. Everyone's worried that the AI bubble will burst and

that

it will be sort of an emperor has new clothes situations when we all realize that these companies that are building AI models really don't have a way to monetize them, that there's not a way for them to earn money selling this service and that

that will cause a lot of stocks in this space to fall. So there's some dominoes out there.
Exactly, because a lot of that wealth is stock market or the housing market.

Similarly, a lot of this wealth is tied up in these assets.

What are your, we'll just go around. What are the biggest questions that are on your mind about the economy heading into 2026 or the things that you'll be watching for?

I'm interested in how the housing market and rates shake out. Like we, you know, we have this huge number of people who are just sitting on their low mortgage rates from the pandemic era of 3% or 3.5%

and don't want to sell their houses.

And what I've heard from real estate agents is that if rates can get down into the 5% range, that might be the golden zone for some people to say, okay, that's low enough for me to sell my place and buy again, even though that's higher, a higher rate than I have now.

That's not terrible. Yeah, I think the big, one of the big stories next year is going to be concerns about inequality.

I have a sense that

there is, it's not just sort of

people who are middle class being sort of angered by people who are upper class, but I think that even within people at sort of, you know, at the upper echelons,

that someone who's like at the 95th percentile, that there's sort of growing anger about what's happening, you know, at the very, very top.

And I think that that is going to be an economic story and a political story as we go into the midterms next year.

I'm really interested in how the falling birth rate, falling marriage rate, and just overall lack of nuclear family formation among young people in America continues to affect the economy, change the way that people spend money and organize their lives.

Well, thank all of you so much.

This was awesome. I feel smarter than I did an hour ago.
Thanks so much. Thanks so much.
Great talking. Thanks a lot, everyone.

Before we go, how do you feel the economy is going? I want to know, what are you most worried about in 2026? What word would you use to describe the economy?

Send us an email with a voice memo to thejournal at wsj.com.

That's all for today, Friday, December 19th.

The journal is a co-production of Spotify and the Wall Street Journal.

The show is made by Katherine Brewer, Kia Gedkari, Isabella Japal, Sophie Codner, Matt Kwong, Colin McNulty, Jessica Mendoza, Annie Minoff, Laura Morris, Enrique Perez de la Rosa, Sarah Platt, Alan Rodriguez-Espinosa, Heather Rogers, Pierce Singhi, Jivika Verma, Lisa Wang, Katherine Whalen, Tatiana Zemis, and me, Ryan Knutson.

Our engineers are Griffin Tanner, Nathan Singapock, and Peter Leonard, with help this week from Sam Baer.

Our theme music is by So Wiley. Additional music this week from Katherine Anderson, Peter Leonard, Bobby Lord, Emma Munger, Nathan Singapock, Griffin Tanner, and Budot Sessions.

Fact-checking this week by Mary Mathis.

Thanks for listening. See you on Monday.