The U.S. Economy Keeps Powering Ahead, Defying Dire Predictions

The U.S. Economic system continues to force through and through the merchandise and immigration shocks of 2025, defying widespread expectations of a slowdown or even a recession and blowing past other developed countries.

One big reason: Americans continue to spend, despite their pessimistic outlook on the economy, their lingering anger about high prices and even a slowdown in the job market. Enormous business investment in the data centers and other scaffolding needed for the artificial intelligence race also helps explain the economy’s growth.

AI investment and household consumption, particularly by higher-income Americans, accounted for nearly 70% of growth in the third quarter, economists from RSM noted after the third-quarter GDP report Tuesday.

“We often talk about the $30 trillion American economy being a dynamic and resilient beast, and the gross domestic product data for the third quarter was no exception,” said Joseph Brusuelas, chief economist at RSM.

The U.S. Economy has defied many of the dire predictions from earlier this year. When President Trump took office with big promises to hike tariffs and curb immigration, many economists slashed their forecasts for economic growth and raised them for inflation and unemployment.

In early April, after Trump announced his Liberation Day tariffs on an enormous swath of imports, stock and bond markets reeled. Economists surveyed by The Wall Street Journal raised their estimated probability of a recession over the next 12 months to 45%, from 22% in January.

Goldman Sachs raised the odds of recession twice this spring, and JP Morgan’s Jamie Dimon warned at the time that Trump’s trade policies would “slow down growth.”

Most everyone got Trump’s tariffs wrong—though the most dire predictions were made before he backed off his most extreme policies. Instead of recession, the U.S. Economy expanded in somewhat unexpected ways. The growth didn’t come from a boom in manufacturing, as Trump had promised, but rather from consumers at the top emboldened by a record-breaking stock market boom, and the build-out of data centers that adds up to about $41 billion annually.

The most vigorous spending has come from the nation’s top 10% of earners, who have gradually come to account for nearly half of national spending.

Airlines are souping up airport lounges to cater to well-off travelers. And they’ve reported strong sales to international destinations and in premium classes this year, even as domestic and main-cabin sales softened. High-end luxury shoppers, meanwhile, are a big source of holiday spending this year.

The U.S. Economy did contract in the first quarter, but that result was distorted by a rush of imports as companies sought to stockpile goods ahead of tariffs. Still, consumer spending, the main engine of the U.S. Economy, remained solid.

Economic growth then rebounded in the second quarter, again fueled by consumer spending. Warnings about an interruption in shipping traffic from China leading to bare store shelves and surging prices never came to pass. That’s partly because Trump eased tariffs on some goods, and also because importers found loopholes and workarounds to avoid them.

Michael Hicks, an economics professor at Ball State University in Muncie, Ind., said a rush to consume before tariff-related price hikes may explain much of consumers’ shopping, all the way through the third quarter. Americans bracing for higher prices likely wanted to get their holiday shopping done by early fall, he said. “If I’m going to get my kids an Xbox, I’d better do it early. If I’m going to buy that sweater that’s made in Spain, I’d better pre-order it,” he said.

Many economists continue to see warning signs. Spending by wealthy Americans could falter if there’s a downturn in the stock or housing markets, and companies including Chipotle and Walmart have said they see pressure on younger or lower-income customers who are cutting back on spending.

Walker Strangis said tariffs fueled soaring import prices for his online fine and rare wine business, Walker Wine Co., driving down sales. While wealthy clients are buying more than ever, they’re not offsetting the overall declines, he said.

At the same time, collectors are clamoring for more storage space, nearly filling Strangis’s 6,000 square foot temperature- and humidity-controlled facility.

“I’m feeling like the rest of the headwinds in the wine world would tell me not to expand right now, except I’m turning business away because I don’t have the space,” he said.

The government shutdown, which began in the fourth quarter, is likely to act as a temporary drag on economic growth, economists said. The job market is weakening. And despite the AI build-out, the pace of business investment cooled in the third quarter.

“While the Q3 GDP number says the U.S. Economy was growing at a nice pace July to September this year, there are reasons to be concerned about what the growth rate will be like going forward,” said Camelia Kuhnen, a finance professor at the University of North Carolina at Chapel Hill.

Ryan Sweet, chief U.S. Economist at Oxford Economics, described the current picture as a jobless expansion, when GDP increases but the job market sags. “This leaves the economy vulnerable to shocks, because the labor market is the main firewall against a recession,” Sweet said.

The GDP report itself contains some troubling disconnects: Americans’ disposable personal income remained flat after inflation, despite their robust spending. The savings rate fell to its lowest level since 2022.

And pessimism persists. The Conference Board on Tuesday reported that the consumer confidence index fell again in December, marking its fifth consecutive month of declines. Growing weakness in the job market was partly to blame.

Yet on the very day of the Conference Board’s report, there was another signal of strong spending: Mastercard’s SpendingPulse, which measures sales in stores and online, found that consumer retail spending excluding cars increased 3.9% between Nov. 1 and Dec. 21 from the previous year as consumers shopped for holiday gifts.

“It very much indicates that the U.S. Economy is continuing to expand, it’s continuing to move forward, even in the face of heightened uncertainty,” said Mastercard chief economist Michelle Meyer, adding that clothing sales were particularly pronounced.

Kush R. Nayak is anxious about finding a job when he graduates from his M.B.A. Program at the University of Minnesota in May, but he isn’t letting that stop him from enjoying the bachelor lifestyle while he can. “It’s hard to tell your wife I want to go and spend five days in Albania,” the 30-year-old said of his European travels this summer.

Nayak is headed to Japan next month with one of his business school classes. He didn’t balk at the extra few thousand dollars the two-week trip added to his tuition bill, which is coming out of his loans. “I only get my M.B.A. Once,” he said.

In East Greenwich, R.I., Damien Cabral is worried about the economy, but spending money on his family and his business anyway.

“It feels like you’re in the ocean with your neck just above the water, and if you look away for one second, you might drown,” said Cabral. “But we haven’t inhaled water yet.”

He estimates that he and his partner have invested around $100,000 combined in their business, PrepU, which helps college students with career placement.

He has pared back personal luxuries like eating out with his wife and 10 and 12-year-old boys, including aprés-ski dinners. But he still spent more than $2,000 on rental skis and season passes at nearby Yawgoo Valley, eager to spend time with his boys while they still want to hang out with their parents. Santa won’t skip their home, either.

Cabral’s older son will unwrap a $266 mini 3-D printer, and his younger son the $107 beach game Flyball for day trips to Narragansett, in addition to an assortment of art supplies and Pokémon cards. “You can’t just put one box under the tree,” he said.

Write to Jeanne Whalen at Jeanne.Whalen@wsj.com and Rachel Wolfe at rachel.wolfe@wsj.com

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