Is the US economy worse today than it was 18 months ago?
Executive summary
Measured by real GDP growth and headline inflation, the U.S. economy looks broadly stronger now than 18 months ago: real GDP rebounded to a 3.8% annualized gain in 2025 Q2 after a revised −0.6% in Q1, and inflation has eased from multi‑year highs toward the mid‑2% range (BEA; Treasury) [1] [2] [3]. But the picture is mixed: employment growth slowed, hiring weakened compared with 2024, and many forecasters expect growth to slow below 2% in 2025 — so whether the economy is “worse” depends on which indicators and time horizons you prioritize (CBO; ECLAC; Deloitte) [4] [5] [6].
1. GDP bounced back — output up, but momentum uneven
After a weak start to 2025 (a revised −0.6% in Q1), real GDP increased at a 3.8% annualized rate in Q2 2025, signaling a sizeable rebound in output according to BEA estimates [1] [2]. Yet multiple agencies and private forecasters see growth slowing from the 2.3% pace in 2024 toward roughly 1.8–1.9% in 2025–26, implying the recent bounce may not sustain high momentum over the medium term (CBO) [4] [7] [8].
2. Inflation mostly tamed, but not uniformly across measures
Headline inflation has fallen materially from the 2022 peak and was reported near the mid‑2% area in mid‑2025, with twelve‑month CPI readings and core measures trending down though some core goods pressures rose late 2024 into 2025 (Treasury; ECLAC) [3] [5]. Forecasts still see inflation a bit above some earlier expectations, and agencies adjusted projections upward modestly for 2025–26, showing disagreement about how quickly inflationary pressures will fade (CBO) [4].
3. Labor market: low unemployment but weaker hiring and churn
The unemployment rate remained low — around 4.1% in mid‑2025 according to the Treasury — which suggests labor market slack is limited [3]. But hiring and payroll gains slowed: first‑half 2025 job additions were well below the same period in 2024 and three‑month payroll averages weakened, evidence that the labor market has cooled compared with 18 months earlier (ECLAC; Deloitte; UMich notes) [5] [6] [9].
4. Consumers and confidence: spending held up even as sentiment fell
Private forecasters and corporate analysts report that consumer spending remained relatively strong into 2025 even while consumer sentiment indices fell sharply from late‑2024 highs (Deloitte), implying resilience in activity despite eroding optimism [6]. That divergence matters: strong spending can sustain growth short term, but weaker confidence raises downside risk to consumption in 2026 [6].
5. Policy and interest‑rate backdrop changed — uncertainty about future cuts
The Federal Reserve’s policy path and the “neutral” real rate (R*) became a central uncertainty: some forecasters see the neutral rate higher than previously estimated and judges the Fed’s ability to cut quickly is now more constrained, which could slow investment and hiring (Georgetown analysis; Purdue/Ctr. for Commercial Ag.) [10] [11]. CBO projections assume Fed rate reductions through 2026 that support growth; other analysts emphasize risks if rates remain higher for longer [4] [11].
6. Fiscal and external considerations — deficits, investment, and tariffs
CBO and BEA note fiscal trajectories and external balances matter: federal deficits and slower foreign direct investment growth were highlighted in recent reports, and tariff risks cited by multiple analysts could raise costs and damp investment — a potential negative relative to 18 months ago when trade uncertainty was different [2] [4] [12]. Available sources do not mention specific state‑by‑state welfare shifts beyond BEA’s high‑level income and PCE notes [2].
7. How to answer “worse” — pick your metric and horizon
If you judge by GDP and lower inflation versus the 2023–24 turmoil, many headline numbers are better now: GDP rebounded and inflation fell from its peak [1] [2] [3]. If you emphasize labor‑market momentum, hiring and investment trends, or forecasts for slower growth and elevated deficits, the economy shows signs of weakening relative to the strong late‑2023/2024 period [5] [6] [4]. Different reputable sources disagree on near‑term outlooks, so “worse” is not a single objective fact but a judgment rooted in which indicators you prioritize [4] [7].
Limitations and transparency: This analysis uses official BEA, Treasury, CBO and selected institutional reports provided in the search results; available sources do not mention household balance‑sheet details, regional microdata beyond BEA state summaries, or real‑time wage distribution shifts not covered in those documents [2] [1] [4].