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Low inflation and unemployment are both good news for the economy, but voters aren’t feeling it. That could be a blow to Republicans in the midterm elections.
When President Donald Trump delivers his State of the Union address to Congress on February 24, he is likely to point to the strong economy as a key indicator of the state of affairs in the United States.
In fact, inflation has fallen faster than most analysts expected. Job growth accelerated in January, also faster than economists expected. And, perhaps more importantly, the economy is poised to accelerate further this spring as consumers receive larger tax refunds than in the past thanks to the landmark tax and spending bill passed last year.
But that economic picture is inconsistent with another picture, and the opposition Democratic Party may choose to highlight that instead.
Even if inflation has slowed, prices remain unaffordable for many Americans. Growth is concentrated in a few narrow sectors of the economy. Health care and social assistance accounted for almost all of the jobs gained in January, and spending on AI equipment is one of the biggest drivers of GDP growth. Meanwhile, consumer confidence fell to its lowest level in January since 2014, worse than at the height of the coronavirus pandemic.
All of this adds up to make the economy look like it’s doing well, if not great, but ultimately it’s not working well for many people. Despite the dizzying swings in policy, from reintroducing tariffs to Supreme Court reversals, from tax cuts to forcing the Federal Reserve to cut interest rates amid inflation concerns, ordinary Americans trying to balance their economic lives may feel left out of the conversation.
Is the economy growing?
“There’s growth, but it’s slow growth,” said Don Rismiller, partner and chief economist at Strategas.
“I don’t think it’s understood by policymakers that AI, nursing homes and Uber are not going to create a very robust economy,” Rissmiller told USA TODAY. “Going forward, I think we need to look at the policies that are put in place to increase growth.”
Rissmiller called economic growth “adequate” in 2025, the first year of President Trump’s second term, and said he felt relatively optimistic about the outlook as some of last year’s policy shocks recede and tax cuts should stimulate growth.
Echoing some of these views, Goldman Sachs analysts wrote in a Feb. 16 note that “January’s jobs report provided further evidence that the labor market is taking early steps toward the stabilization we and the Fed expect this year. However, other recent labor market data has been weak, and the evidence for stabilization remains preliminary.”
Goldman analysts concluded: “We view risks to our labor market forecast as continuing to be tilted toward a negative outcome, and we view this to be a key risk in 2026.”
Neither they nor Rissmiller expect the Supreme Court’s Feb. 20 decision to cancel some of President Trump’s tariffs to have a major impact. Additionally, President Trump has already announced new 15% tariffs worldwide.
“The policy changes are consistent with our expectations, and our estimates of the impact of tariffs on inflation and growth remain largely unchanged as a result,” Goldman’s team wrote shortly after the announcement.
“K” shaped economy
Other observers are even less optimistic. Diane Swonk, chief economist at KPMG, has written frequently in recent months about the widening gap between the haves and have-nots in the U.S. economy, and remains convinced that inequality “corrodes rather than fuels” growth.
Swonk pointed out that the AI revolution, which is generating much of the economic growth, is not creating many jobs. He also said that while luxury consumers have been able to sustain spending across the economy, that may not be sustainable.
“Historically, we have seen that periods of extreme inequality do not produce good economic or social outcomes,” she says.
For Swonk, consumer confidence measurements are more than just a measure of whether people like the economy. These are signs that people are losing trust in the government.
“There’s a sense of betrayal,” she said. “Certainly, when you talk to people, it’s very difficult how they try to make ends meet every day. That’s part of the reason why we’re seeing so much vitriol out there.”
Other economists take a more realistic view. Inflationary shocks over the past few years have driven prices up so much that Americans think it’s “ridiculous” to see something that has nearly doubled in price in a few years, Rissmiller said.
It may take a long time for those prices to feel “right” and the economy no longer feels “bad,” but ultimately most consumers will continue to buy sandwiches, which will keep the economy booming, he said.
“For all the shock we went through, there was some offset,” he said.
