Quarterly Outlook: Economic Growth Remains Strong Despite Slowing Job Market

Even though unemployment rose in the third quarter of 2025, the U.S. economy showed strong momentum due to robust consumer spending. Our Quarterly Outlook explores the risks, sources of stability, and key areas to watch as we enter into 2026.

Main Takeaway

The U.S. economy showed renewed strength in Q3, expanding at a robust 4.3% annualized pace, exceeding expectations, supported by solid consumer spending despite weak confidence. Inflation showed signs of moderation, with November CPI cooling to 2.7% from 3.0% the prior month. However, labor market conditions remain a concern, as job growth slowed and the unemployment rate rose to 4.6%, the highest level in four years.

Top Risks

The cooling job market continues to raise concerns, with the U.S. economy adding only 67,000 jobs over the three-month period ending in November and the unemployment rate rising to 4.6%. Consumer confidence has also weakened, with the Consumer Confidence Index falling to its lowest level since April. The Expectations Index, which reflects consumers’ outlook for income, business, and labor conditions, remained well below 80, the recession threshold, for the tenth consecutive month.

Sources of Stability

The U.S. economy continues to hum along, posting a 4.3% annualized growth rate in Q3. Consumer spending remains very strong, particularly among high-income households, rising 3.5% in Q3, up from the 2.5% pace in Q2. More recent real-time indicators, including retail sales and card-swipe data suggest consumer spending continues to be robust. Despite ticking up slightly in November, unemployment remains low at 4.6% and the most recent inflation data showed some moderation.

For our latest perspectives on markets and economic conditions, view our Quarterly Outlook report for Q1 2026.

Sources: Bureau of Economic Analysis, The Conference Board.

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