The U.S. economy has been tested by a barrage of challenges in 2025, from sharply higher U.S. tariffs that drove up inflation and rattled consumer confidence, to rising unemployment amid a slowdown in hiring.
Despite those headwinds, the economy has continued to chug along, defying early-year warnings from some economists that the nation could be headed for a recession or that the Trump administration’s tariffs would reignite runaway inflation.
The biggest surprise of the year has been the economy’s durability, according to experts. Economic growth has surged to its fastest pace in two years, inflation has risen less than feared and the stock market has climbed to fresh highs.
“This has been another year of resilience for the economy,” Oxford Economics chief U.S. economist Michael Pearce told CBS News. “The economy has grown at a pretty steady pace.”
Yet Pearce hastens to add that the economy, although it has navigated some tricky waters, is “not spectacular” as the year comes to a close, assigning it a grade of a B or B-. Other experts who spoke with CBS News also graded the economy in the B range.
That may strike many consumers as generous. Three-quarters of Americans surveyed by CBS News earlier this month said they would give the U.S. economy a C, D or F, while just 25% assigned it an A or a B. Recent consumer confidence surveys also indicate that many Americans are downbeat about the economy, mainly due to stubbornly high prices.
The disconnect partly reflects the differences in how consumers and economists tend to judge the nation’s economic performance. While financial pros tend to focus on macroeconomic indicators such as GDP, inflation and unemployment, consumers are more likely to assess the economy based on pocketbook issues like food prices and health care costs — both of which have risen in 2025.
The White House said the economy has improved from last year under former President Joe Biden.
“Although much work remains, the American economy is leaps… better now than it was a year ago under Joe Biden: cooled inflation, private-sector job growth, cheaper essentials like gas, lower taxes, and trillions in investments flowing in to make and hire in America,” White House spokesman Kush Desai said in a statement to CBS News.
He added, “As President Trump’s economic agenda continues taking effect, Americans can rest assured that 2026 will be even better.”
A turbulent year
The economy has been marked by pronounced volatility and uncertainty in 2025, ranging from the Trump administration’s wide-ranging tariffs to an alarming downturn in growth in the first three months of the year.
“It’s rare that we’ve seen a president come in and, with a unified Congress, have such immediate impacts on the economy,” Pearce said. “Not all of those are impacting the economy right away, but we’ve seen a lot of those policies generate a lot of uncertainty.”
For instance, the Republicans’ “big beautiful bill” act, signed into law by Mr. Trump on July 4, will likely impact the economy in 2026, with consumers expected to receive juicier tax refunds.
Other effects of the new law could work against some consumers. Perhaps most concerning is the expiration of Affordable Care Act enhanced tax credits, which experts warn will sharply drive up health insurance premiums for millions of Americans.
Meanwhile, it’s been a banner year for investors as the boom in artificial intelligence pushed the stock market to a succession of record highs. At the same time, the bullish sentiment on Wall Street has fueled questions about whether a possible AI bubble could turn to bust if the enormous investment in the technology fails to deliver the promised gains in productivity and corporate profits.
Life on the “K”
Economic turmoil often impacts consumer sentiment, making people feel less confident about their finances, economists have long noted. That dynamic has led experts to describe the economy this year as “K-shaped,” in which higher-income consumers spend robustly — thanks in part to the strong stock market — even as lower- and middle-income consumers pull back.
And it’s no wonder. Although inflation has cooled since peaking at a 40-year high in 2022, prices remain elevated, squeezing many Americans and making it hard for them to cover even basic expenses, Mark Luschini, chief investment strategist at wealth management firm Janney Montgomery Scott, told CBS News.
It isn’t just routine purchases that are straining consumers — it’s also the barriers in the way today of reaching once ordinary financial goals, such as buying a first home, saving for retirement or even just paying off debt, added Chen Zhao, head of economic research at online real estate firm Redfin.
When it comes to homeownership, evidence of that barrier is visible in the median age of first homebuyers today — that hit 40 this year, a record high, according to the National Association of Realtors. With home values near all-time highs and mortgage rates hovering around 6.3%, many younger Americans are feeling priced out, she said.
“This situation that we’re in right now, where [housing] affordability has gotten to be the worst it’s really ever been in recent memory — and significantly worse than before the pandemic — it’s really unfortunate for the younger generation,” Zhao said. “It means delaying the American dream for a lot of folks.”
Hiring slowdown
Another pressure point is the labor market, where hiring has slowed throughout 2025. The U.S. unemployment rate rose to 4.6% in November, its highest level in four years.
Layoffs also jumped to 1.1 million this year through November, up 54% from a year earlier and the highest level since 2020, according to outplacement firm Challenger, Gray & Christmas.
While job seekers are finding it tougher to get a foothold in today’s labor market, it’s proving particularly challenging for young people, who are facing a decline in job listings and competition from more experienced workers, experts said.
Cooling job growth in the second half of the year is partially a reflection of persistent economic uncertainty, which has led many businesses to throttle hiring. Some businesses are also trimming jobs as they invest in AI, which can perform some tasks previously handled by employees.
“Any type of uncertainty is going to lead to slower business decisions, whether it’s hiring or investment,” Greg Daco, chief economist at consulting firm EY-Parthenon, told CBS News.
Labor market headwinds in 2025 have prompted the Federal Reserve to cut its benchmark interest rate three straight times since September. By lowering borrowing costs, the Fed is aiming to encourage businesses to expand and hire.
Slower hiring and rising layoffs could pose a risk to consumer spending, which drives nearly two-thirds of economic activity, economists note.
“A slower labor market leads to slower income growth, which eventually ends up pulling consumer spending lower,” Daco said.
Muted tariff impact
One of the biggest economic surprises of 2025 came with President Trump’s sweeping tariffs, announced in April on what he termed “liberation day.” The plan caused U.S. stocks to plunge and stoked fears that the levies would reignite inflation.
Yet despite such concerns, tariffs so far have had a more muted impact on inflation than initially feared. That’s partly because U.S. companies, which pay the import duties to the federal government, stockpiled goods before the tariffs kicked in and absorbed some of the costs rather than passing them on to consumers.
“Generally speaking, the economy outperformed expectations in the face of several large supply shocks,” Daco said.
Still, inflation remains sticky. The Consumer Price Index, which stood at 3% in January, remains stuck at the same level as of November. Oxford Economics’ Pearce estimates that the stepped-up import duties added 0.5 percentage points to the nation’s inflation rate this year.
