US economic forecast 2026: Blind spots threaten growth

Writer: Mirella Franzese

November 2025 — Despite signs of stabilization in the third quarter, the U.S. economy faces deepening structural pressures that could test growth in the following quarters. Economic growth steadied in the previous quarter, supported by record stock gains, firm consumer spending, and balanced labor markets — though cracks remain beneath the surface.

Join us at caa’s upcoming leadership summits! These premier events bring together hundreds of public and private sector leaders to discuss the challenges and opportunities for businesses and investors. Find the next summit in a city near you!

“The American economy is a $30 trillion dynamic and resilient beast, but it’s going to face a test here at the turn of the year,” Joseph Brusuelas, chief economist at RSM U.S., told Reuters. 

The road to 2026 remains challenging. The OECD’s latest economic outlook suggests a slower path forward, forecasting that growth will lose momentum through 2026. 

According to the OECD’s report, U.S. economic growth will slow to 1.8% in 2025 from 2.8% in 2024 — dipping below the 2-3% rate, widely viewed as healthy for an economy. This number is projected to slip further to 1.5% in 2026, as higher tariff rates, net immigration losses, and cuts to the federal workforce disrupt growth. Analysts also warn that other critical vulnerabilities persist, including funding cuts, sustained inflation, and the lingering impact of the ongoing federal shutdown — all of which could weigh on performance into 2026. (Check out the latest Invest: Business Sentiment Survey results for how executives are viewing the economy and business.)

Blind spots

As the Treasury notes, there are several blind spots in the path ahead that could severely undermine the American economy.

“We see both upside and downside risk,” said Stephen Meyer, CEO of the Philadelphia-based PPR Capital Management. “Rates are likely trending down, which is generally positive, but the broader question is whether the economy is strong enough to support that shift. Unemployment is a key concern… and inflation remains sticky enough to impact Fed decisions,” Meyer told Invest:.

Beyond rates and inflation, experts point to several key indicators that pose the biggest risks to the U.S. outlook.

The federal government shutdown

The federal government shutdown, which ended on Nov. 12, threatens to drag the current quarter’s GDP growth. This occurs through lost productivity from discharged workers, paycheck delays, and spillover effects on related industries, like government contractors and local services. The CBO estimates up to $14 billion in lost output from the shutdown, although economists believe the real toll could be higher, according to Poynter. The CBO expects most losses to be recouped in early 2026, though lasting damage to the late 2025 is likely.

Consumer spending

Consumer spending is the largest component of GDP, accounting for nearly 70% of the U.S. economic output, according to Morningstar. As such, it is considered one of the main determinants of the country’s economic health. However, in 2025, consumer spending has been at odds with consumer sentiment, leading to an uncertain outlook.  While real personal consumption expenditure increased by 1.4% in the second quarter of 2025 from the previous quarter, consumer sentiment is still markedly lower than in 2024, according to research from the University of Michigan.

While recession fears have stoked broader pessimism in the economy, consumers haven’t pulled back on spending yet. Because economic data lags real-time behavior, experts view the gap between sentiment and spending as a concern, especially given that spending data might not catch up with how consumers are really feeling. Spending therefore remains a major blind spot for economists when assessing upcoming quarters.

Labor markets

Ruling out the shutdown, a decrease in public sector employment is expected to weigh on labor markets through the 4Q25. More than 150,000 federal employees on the Deferred Resignation Program are expected to have departed government employment after an imposed period of leave, which ended on Sept. 30. Analysts expect October employment to reflect this decline in total payroll employment, unless these employees had their resignation date postponed, were recalled from administrative leave upon agency reconsideration of staffing needs, or had found replacement jobs.

The broader labor market is expected to remain a weak spot in the months ahead, according to the Wall Street Journal’s latest economic census. This quarter, economists expect the economy to add only 15,000 jobs a month — down more than 35,000 from July’s survey. The long-term outlook also falls below expectations. In the coming year, U.S. employers are expected to add fewer employees — just 49,000 a month on average, down from 74,000 a month in their previous survey. That is also WSJ economists’ lowest monthly payrolls forecast since the July 2023 survey.

Yet higher unemployment is still unlikely despite slower job growth, as the new administration’s immigration crackdowns have reduced the supply of workers in a number of key industries. According to the Treasury Department, labor supply and labor demand have softened at the same time, which has offset modest hiring with somewhat stable unemployment.  

“Indeed, labor markets appear to remain in balance as labor demand has softened with easing supply,” announced the Treasury in a press release. “With modest hiring but low layoff rates, firms appear to be shedding labor via attrition and planning on productivity to drive output growth.”

Stock market

Sustained corporate investment in the tech sector carried stocks to record highs in the 3Q25 — a positive economic indicator for the Treasury. However, the U.S. stock exchange is not representative of the economy as a whole, as Morningstar’s senior editor Margaret Giles notes. Large corporations and wealthy investors hold the biggest influence over the stock market, but small businesses make up the majority of the U.S. economy. Stock prices reflect investor confidence rather than current conditions like spending and employment, but remain vulnerable to tariff announcements, rate cuts, and press releases.

Inflation and political rift

Interest rates, geopolitical uncertainty, and tariffs are among the biggest upside risks to the inflation outlook. Energy prices remain extremely volatile, driven by geopolitical shocks such as conflicts and tariff changes. Even though the U.S. has advanced its trade and economic relations with China, as recently announced by the White House, tariffs are expected to continue to play a pivotal role in 2026.

“There is a lot of uncertainty surrounding tariffs, their effects on the cost of goods, and their effects on business expansion,” said Forvis Mazars Managing Partner Brian West in an interview with Invest:. “The economy has slowed slightly… More businesses are pushing back on expanding their teams and services. Budgets are being constricted from taking on opportunities for future planning. Business acquisitions have dropped in the last quarter. We are seeing signs pointing to a wait-and-see approach, which is putting a pause on hiring, decision-making, and new projects.”

Artificial intelligence

Corporate spending on AI infrastructure and data centers has buoyed economic growth and driven stock market rallies throughout 2025. While these projects are expected to create productivity gains and economic growth, timelines for completion are uncertain. Additionally, AI’s growing role in the workforce is reshaping productivity and employment structures, creating efficiency gains but also new forms of displacement, such as layoffs. 

“Artificial intelligence also could have disruptive impacts on the economy and labor markets as businesses and individuals integrate it or fail to. Firms that are slow to adapt to the technology could find themselves at a competitive disadvantage, as could workers that delay incorporating artificial intelligence to improve their skills growth and productivity,” stated the Treasury. As business leaders weigh expansion against uncertainty, the coming quarters may prove decisive in determining whether the economy’s soft landing can be sustained — or whether deeper structural challenges will resurface. 

“The future remains uncertain,” said Tom O’Connor, Nashville market executive for financial services leader Synovus, in an interview with Invest:. “We might have clarity in three months, or we might not.”

Want more? Read the Invest: reports.