State of U.S. Economy Q4-2025
The U.S. economy enters Q4 2025 navigating a combination of resilience and headwinds. Growth remains positive, yet markedly slower than pre-pandemic norms. For example, one forecast from EY projects year-over-year growth in Q4 of around 1.2%. EY The recent 43-day federal government shutdown added a wrinkle: The Conference Board estimates the disruption may shave approximately 0.5 percentage points off Q4 growth as data releases and government spending were delayed. The Conference Board+1 Meanwhile, core inflation remains elevated near 3 %, and consumer sentiment has dropped to near record lows as households grapple with slowing wage growth and higher prices. Bloomberg
On the labor side, the picture is softening. The unemployment rate is expected to drift up toward 4.8 % by early 2026 according to EY, reflecting slower hiring and greater caution by employers. Although unemployment remains relatively low by historical standards, the deceleration in job creation underscores the economy’s transition from “boom” to “moderate growth.” For investors and business leaders, the takeaway is clear: the era of easy upside has given way to one of selective opportunity—and risk management. The slowdown doesn’t point definitively to recession, though the odds have increased (some analysts now place the probability above 30 %), making discipline around capital allocation and asset selection more important than ever.
The housing market continues to experience unusual crosscurrents moving into late 2025. Mortgage rates remain elevated near 6.8 percent according to Freddie Mac, keeping affordability at multi-decade lows and suppressing transaction volume. At the same time, national home prices have held firm due to tight supply and limited new construction, a dynamic highlighted in recent reporting from the Wall Street Journal. Builders remain cautious and construction spending has slowed, which limits inventory and keeps prices from correcting in a meaningful way. This imbalance between high borrowing costs and limited supply makes housing a persistent drag on household mobility and economic activity.
Financial markets are also reflecting the mixed macro backdrop heading into the final stretch of the year. Equity performance has become increasingly bifurcated, with mega-cap technology firms continuing to outperform while more cyclical sectors lag. Bloomberg notes that corporate earnings revisions have turned negative for the first time since 2022, driven largely by weakening demand in consumer discretionary and manufacturing sectors. Meanwhile, the Federal Reserve has signaled it will maintain restrictive policy into 2026 until inflation shows a more durable decline. This environment has encouraged investors to shift toward quality assets, stronger balance sheets and sectors that can maintain earnings power even in slower growth conditions.
