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Posted on 12/26/2025 5:15:24 PM PST by SeekAndFind
For much of 2025, the dominant narrative among economists, market strategists, and Wall Street commentators was straightforward and gloomy. Trade shocks would slow growth. Immigration crackdowns would tighten labor markets. Tariffs would reignite inflation. A recession, many said, was not a matter of if, but when.
That story has not played out.
Instead, the U.S. economy continues to outperform expectations and outpace other developed nations. Growth has persisted even as consumer confidence has fallen, the labor market has cooled, and trade policy uncertainty has lingered. For investors, this disconnect between sentiment and reality is not just interesting. It is actionable.
At the heart of this economic resilience are two powerful forces. First, the American consumer, especially higher income households, continues to spend. Second, an unprecedented surge in artificial intelligence related investment is reshaping capital spending across the economy.
Together, these two forces accounted for nearly 70 percent of U.S. economic growth in the third quarter of 2025, according to economists at RSM following the latest GDP report.
“We often talk about the $30 trillion American economy being a dynamic and resilient beast, and the gross domestic product data for the third quarter was no exception,” said Joseph Brusuelas, chief economist at RSM.
For investors, understanding why this resilience exists and how long it can last is essential to positioning portfolios for 2026 and beyond.
Early in 2025, the outlook looked far different.
When President Donald Trump returned to office promising sweeping tariffs and tighter immigration enforcement, many economists quickly revised their forecasts. Growth expectations were slashed. Inflation projections were raised. Unemployment forecasts crept higher.
Those concerns intensified in April after Trump announced his so-called “Liberation Day” tariffs on a wide range of imports. Markets reacted violently. Stocks sold off. Bond yields spiked. Recession fears surged.
A Wall Street Journal survey showed economists raising the probability of a recession within 12 months to 45 percent, up from just 22 percent in January. Goldman Sachs raised its recession odds twice during the spring. JPMorgan Chase CEO Jamie Dimon warned that Trump’s trade policies would “slow down growth.”
Yet nearly all of those forecasts proved too pessimistic.
Rather than tipping into recession, the U.S. economy expanded in unexpected ways. The growth did not arrive through a renaissance in manufacturing, as many had hoped. Instead, it came through two channels that investors often underestimate: wealth-driven consumer spending and massive private investment in AI infrastructure.
One of the most important, and controversial, realities of the current expansion is that it is not evenly distributed.
The most vigorous spending in 2025 has come from the wealthiest Americans. The top 10 percent of earners now account for nearly half of all U.S. consumer spending, a structural shift that has been building for years but is now unmistakable.
This trend explains why consumer sentiment surveys paint such a bleak picture while retail sales and services spending remain strong.
High income households benefited disproportionately from the stock market’s record-breaking gains earlier this year. Rising asset values helped offset inflation fatigue and gave affluent consumers the confidence to keep spending.
Examples of this divergence are everywhere.
Airlines have doubled down on premium travel. Airport lounges are being expanded and upgraded. International routes and business class seats are selling well, even as domestic economy ticket sales soften.
Luxury retailers report that high-end shoppers are a major source of holiday spending, even as lower income consumers pull back.
This pattern matters for investors because it explains why certain sectors continue to thrive while others struggle. Businesses catering to affluent consumers are seeing far more resilience than those reliant on price-sensitive households.
The second major pillar of economic growth in 2025 is artificial intelligence investment.
Companies are pouring money into data centers, networking equipment, cloud infrastructure, and energy capacity needed to support AI workloads. This build-out is estimated to add roughly $41 billion annually to economic activity, and that figure is likely conservative.
Unlike consumer spending, which can fluctuate with confidence and markets, AI investment reflects long-term strategic commitments. Companies are racing to build capacity now to avoid falling behind later.
This wave of spending has lifted capital investment even as other areas of business spending cooled during the third quarter.
For investors, this helps explain why certain segments of the market continue to command premium valuations. AI infrastructure is not a short-term trend. It is becoming foundational to productivity, competitiveness, and national economic strength.
Despite strong headline GDP numbers, not everything beneath the surface is healthy.
The U.S. economy did contract in the first quarter of 2025, though that decline was largely distorted by a surge in imports as companies rushed to stockpile goods ahead of tariffs. That import surge subtracted from GDP even as domestic demand remained solid.
Growth rebounded in the second and third quarters, again led by consumer spending.
Warnings earlier in the year about empty shelves and shipping disruptions from China never materialized. That outcome was partly due to Trump easing tariffs on certain goods and partly due to importers finding workarounds to minimize tariff exposure.
Michael Hicks, an economics professor at Ball State University, said much of the spending may reflect consumers pulling purchases forward in anticipation of higher prices.
“If I’m going to get my kids an Xbox, I’d better do it early. If I’m going to buy that sweater that’s made in Spain, I’d better pre-order it,” he said.
That dynamic raises a key investor question. How much of today’s strength is sustainable demand, and how much is demand borrowed from the future?
Approximate Contribution to Q3 2025 GDP Growth
| Growth Driver | Estimated Share of Growth |
|---|---|
| High income consumer spending | ~45% |
| AI and data center investment | ~25% |
| Other business investment | ~15% |
| Government and net exports | ~15% |
This breakdown highlights the concentration of growth. Two drivers account for roughly 70 percent of expansion, leaving the economy vulnerable if either weakens.
One of the most concerning aspects of the current expansion is the labor market.
While GDP continues to grow, job creation has slowed. Some economists describe the situation as a jobless expansion, where output rises without broad-based employment gains.
Ryan Sweet, chief U.S. economist at Oxford Economics, warned that this dynamic increases vulnerability.
“This leaves the economy vulnerable to shocks, because the labor market is the main firewall against a recession,” he said.
A weaker job market undermines consumer confidence and limits wage growth, especially for lower income households who are already under pressure from inflation.
That pressure is showing up in corporate earnings calls. Companies like Chipotle and Walmart have acknowledged softness among younger and lower income customers, even as higher income consumers remain resilient.
Another red flag for investors is the disconnect between spending and income.
According to the GDP report, inflation-adjusted disposable personal income remained flat in the third quarter. Yet consumer spending continued to rise. That gap was bridged by a falling savings rate, which dropped to its lowest level since 2022.
This is not a sustainable long-term trend.
When households spend more without income growth, they either draw down savings or take on more debt. Both reduce future spending capacity.
At the same time, pessimism remains entrenched. The Conference Board reported that its consumer confidence index fell again in December, marking five consecutive months of declines. Weakness in the job market was a major factor.
For investors, this combination suggests an economy that is strong but fragile.
The uneven nature of growth is not just theoretical.
Walker Strangis, who runs Walker Wine Co., said tariffs pushed up import prices for his fine and rare wine business, hurting sales.
While wealthy clients are buying more than ever, they are not enough to offset broader declines, he said.
Yet Strangis also faces a different problem. Demand for wine storage has surged so much that his 6,000 square foot climate-controlled facility is nearly full.
“I’m feeling like the rest of the headwinds in the wine world would tell me not to expand right now, except I’m turning business away because I don’t have the space,” he said.
This anecdote captures the strange tension of the current economy. Weakness and strength coexist, often within the same business.
Looking ahead, several risks could challenge the economy’s momentum.
A prolonged government shutdown, which began in the fourth quarter, will likely weigh on growth in coming months.
Business investment outside of AI has already cooled. If stock or housing markets correct, high income consumer spending could slow sharply.
Camelia Kuhnen, a finance professor at the University of North Carolina at Chapel Hill, cautioned that the current pace may not persist.
“While the Q3 GDP number says the U.S. economy was growing at a nice pace July to September this year, there are reasons to be concerned about what the growth rate will be like going forward,” she said.
The U.S. economy in 2025 is not booming in the traditional sense. It is adapting.
Consumer confidence is weak. The labor market is softer. Yet growth persists because wealth, investment, and technology are doing the heavy lifting.
For investors, this is not a time for blanket optimism or outright fear. It is a time for selectivity.
Understanding where growth is actually coming from, and where it is not, may be the difference between outperforming and being caught off guard as the cycle evolves.
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unexpectedly...
“AI and data center investment ~25%”
The same thing was said just before the ‘dotcom’ bust too. Some of these companies are going to take a huge loss in the AI boom along with the hundreds of data centers being built are going to open up the bankruptcy pit also.
This is reminding of the ghost cities throughout China, “build and they will come” isn’t always a good investment.
It just keeps getting worse and worse for the libs.
Dire Predictions? ... by whom?
The growth might be true, and it might not.
The data is not reliable.
Q4 data should be good...depending on when the Democrats shut down government in January. Otherwise more flying blind.
Personally, I’m taking a somewhat defensive position in the markets and upping my cash savings. If I venture into a high risk stock, I do so with restraint.
RE: Dire Predictions? ... by whom?
If you read the MSM or watch the alphabet news channels, you should see them almost everyday in the business news.
The MSM who gets their predictions from My Little Pony.
MSFT, GOOG
even as consumer confidence has fallen“
The Trump hating has made their mission.
even as consumer confidence has fallen“
The Trump hating has made their mission.
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