The Journal. - It's Almost 2026. How's the Economy?

Episode Date: December 19, 2025

How did the U.S. economy do in 2025? With unemployment ticking up, tariffs shaking up global trade and the stock market booming, it has been hard to make sense of it all. Ryan Knutson talks with three WSJ economics reporters–Justin Lahart, Rachel Wolfe and Jeanne Whalen– about the state of the economy as we wrap up the year, and about what to expect in 2026.  Further Listening: - The Era of AI Layoffs Has Begun - Is the Economy Getting Better or Worse? The Fed Says It's Hard to Tell Sign up for WSJ’s free What’s News newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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 Gene Waylon. I'm an economics reporter for the Wall Street Journal in Chicago. I'm Justin Layhart. I'm an economic. 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. Me. 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 called the K-shaped economy. So it really depends where you're sitting.

And young people in particular are having separate time in the job market. And you know that they've been priced out of homeownership. And so we're seeing a lot of frustration, especially among people in the 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 Knutzen. It's Friday, December 19. Coming up on the show, a 2025 economy health check. This episode is brought to you by Fidelity. You check how well something performs before you buy it. Why should investing be any different? Fidelity gets that performance matters most. With sound financial advice and quality investment products, they're here to help accelerate your dreams.

Chat with your advisor or visit Fidelity.ca. Performance to learn more. Commissions, fees, and expenses may apply. Read the funds or ETSs prospectus before investing. Funds and ETS are not guaranteed. Their values change and past performance may not be. repeated. 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 that 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 good shortages over the summer. What we've actually seen, while, you know, the effective tariff rate overall is quite a bit higher now than it was at the beginning of the summer. 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 rooting 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 tariffs, 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, and 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 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 Jean 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 percent 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 is 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 X, right? It's just, it's just, you know, once you see it, you just remember it, and 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, and 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 health care and social assistance is growing, and everything else is kind of dead in the water shrinking lately. Hmm. 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, have been 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, you know, 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, or 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 spent 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 past generations. If they're not planning to have kids, they maybe feel like money takes on a different meeting. 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 to our employers owe us. So it's a little bit of a vibes story. Yeah, I mean, it's like things that 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 looked 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 Rachel 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 another thing that's going on, 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, so a lot of lower income people will, you know, 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. that 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. But apparently, the company will, you as the applicant, talk to a screen, you talk to a computer that is showing you questions and 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 setting record after record high. That's after the break. When you're flying Emirates business class, sampling our range of vintage wines. From the largest selection in the skies, you'll see that your vacation isn't really over until your flight is over.

Fly Emirates. Fly Better. 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. 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. 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 interesting. We do know that people's preference 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. 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 in a quality 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 premeditization of products, services, airplane seats. And is that something that is an unstoppable force? Or like, could there be one little speed bump that derails all of that spending. All in the stock market. The stock market turning down. 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. 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 a higher rate than I have now. that's not terrible. Yeah, I think 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 terms next year. I'm really interested in how the falling birth rate, following marriage rate, and just

overall lack of nuclear family formation among 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 the job. Journal at WSJ.com. That's all for today. Friday, December 19th. The Journal is a co-production of Spotify and the Wall Street Journal.

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