Why The US Economy Looks Strong On Paper But Still Feels Weak

---

The headline numbers say the economy is cooling, but not collapsing. For many households, though, the slowdown feels less like a soft landing and more like a continuation of years of financial strain.

How The Economy Actually Performed in Q4

The U.S. Bureau of Economic Analysis reported that seasonally adjusted GDP in the fourth quarter of 2025 increased at an annual rate of 1.4%, down from 4.4% in the third quarter, as the graph below from the Federal Reserve Bank of St. Louis shows.

And here are the absolute GDP numbers over time.

Both of these graphs use seasonally adjusted numbers, which economists create to account for presumably predictable seasonal shifts. There are graphs for nonadjusted absolute GDP numbers, but they only seem available for annual counts, so they’re tough to compare.

Here is a graph for annual GDP showing both seasonally adjusted and nonseasonally adjusted period-over-period percentage changes to depict how different the two can be.

The Q4 2025 GDP numbers may be better than they seem. “What we’re seeing is an amalgamation of slightly lower growth rates than we were anticipating in the GDP and slightly higher inflation rates than we were expecting, which is generally an unfavorable pairing for the stock market,” said Steve Wyett, chief investment strategist at BOK Financial. “The ‘miss’ in GDP, however, was primarily a .9 [percentage point] reduction in growth from government spending due to the 4th quarter shutdown. This should reverse in Q1.”

That’s one estimate of the difference. “Glenmede estimates that the longest government shutdown in U.S. history likely held back economic growth by up to 1.5 [percentage points] in Q4, but this was a temporary headwind that is likely to reverse over the next few quarters,” says Glenmede VP of Investment Strategy Mike Reynolds.

Including the 0.9 to 1.5 percentage points brings the growth rate to between 2.3% and 2.9%, not terrible, but even at the high end, significantly down from Q3.

As for the January Consumer Price Index inflation number, it was 2.4% over the last 12 months, a significant move toward the Federal Reserve’s 2.0% target.

That is the relatively happy news. Here’s the other part.

What Other Key Economic Indicators Reveal

CPI is only one measure of inflation. The other is Personal Consumption Expenditures, with the latest numbers from December. The year-over-year increase was 2.9%. The CPI change was 2.7%. The Fed looks more closely at PCE because it incorporates economic changes in a timely way; they consider it a more accurate measure. PCE for January isn’t available yet.

Even if looking at the most reasonable January 2.4% CPI, ordinary expenses like food, shelter, utilities and medicine had much higher increases. The 12-month inflation rates for some important categories are 2.9% for food; 6.3% of electricity; 9.8% for piped gas service; 3.0% for shelter (including rental and homeownership); and 3.9% for medical care.

Even these may be understated. As Matt Randolph , a globally recognized expert in the oil and gas industry says: “It is important to note that electricity prices differ from electricity bills, as bills include additional costs such as transmission and delivery, which have also risen significantly nationwide.” The additional costs don’t get captured in the CPI reports.

The University of Michigan’s index of consumer sentiment was up 0.2 index points higher than January’s. But it’s also 13% below February 2025 and 21% below January 2025. Responses also showed a significant bifurcation. “A sizable month-to-month increase in sentiment for the largest stockholders was fully offset by a decline among consumers without stock holdings,” they said. “Similar divergences were seen across income and education, where higher-income or college-educated consumers exhibited increases in sentiment while lower-income or less-educated counterparts did not. With their much stronger income prospects and investment portfolios, wealthier and higher-income consumers feel better insulated from any possible risks to the economy.”

According to Gallup , 62% of Americans reported owning stocks in 2025. The University of Michigan Surveys of Consumers didn’t provide a distribution of its results, so it’s impossible to tell whether the responses were even across the entire group of stock owners or only part.

It’s also good to remember that the S&P 500’s current value depends heavily on a handful of tech stocks, which is not a solid foundation.

By Erik Sherman, Senior Contributor