Labor market lags as consumer spending drives U.S. growth

WASHINGTON — The U.S. economy experienced its fastest growth in two years during the third quarter of 2025, but the expansion still offers limited momentum for the labor market, highlighting a growing disparity between overall growth and job creation.

Gross domestic product increased by 4.4% annually from July through September, according to the Associated Press, citing revised data from the U.S. Commerce Department. Consumer spending, which makes up about 70% of U.S. economic activity, grew at a steady 3.5% rate, supporting the stronger growth.

However, employment gains have not kept up with the overall economy. Employers added only 50,000 jobs last month, a stark difference from the roughly 400,000 monthly gains seen during the 2021–2023 post-pandemic hiring surge. Since March, job growth has averaged at historically weak levels for an economy expanding at this pace.

The unemployment rate stays low at 4.4%, indicating what economists call a “no-hire, no-fire” labor market, where companies are hesitant to add workers but wary of cutting payrolls amid economic and policy uncertainty.

Initial filings for unemployment benefits slightly increased to 200,000 for the week ending Jan. 17, up from 199,000 the week before but still lower than analyst expectations, according to the Associated Press. The data indicates layoffs remain limited, even as hiring stagnates.

Economists say the gap between strong growth and weak hiring shows an economy increasingly influenced by spending from higher-income households and productivity improvements related to technology and artificial intelligence investments.

“The United States is experiencing a jobless boom where strong growth is powered by AI investments and consumption by wealthier families, but there is almost no hiring,” said Heather Long, chief economist at Navy Federal Credit Union. “It’s an uneasy situation for many middle-class families.”

Public sentiment about the economy remains subdued despite the growth numbers, with many workers mentioning the high cost of living and limited wage increases. Analysts often describe the current situation as a “K-shaped economy,” where wealthy households continue to benefit from investment gains while lower-income workers face stagnant wages and rising prices.

“Affluent households continue to power the economy forward,” Diane Swonk, chief economist at KPMG, told the New York Times. “The concentration of gains in the hands of a few households masked the underlying pain many are expressing in consumer attitude surveys.”

Inflation has eased but still affects workers. The Personal Consumption Expenditures price index showed prices increased by 2.7% year over year in October and 2.8% in November. Goods inflation, which had been slowing since 2022, has started to climb again after tariffs implemented last spring under President Donald Trump, the New York Times reported.

One potential relief for households in 2026 could come from the tax system. Researchers at Bank of America estimate recent tax changes might increase refunds by about 26%, or nearly $100 billion, helping to offset slow wage growth and rising prices.

Still, economists warn that lasting economic health will rely less on consumer resilience and more on whether hiring and wage growth start to accelerate in the coming months.