The data is in, and last year presents an economic conundrum: Overall growth was relatively strong, but job growth was virtually nonexistent. It bodes ill for the gap between the rich and everyone else.
Newly released data showed the US economy grew 2.2% in 2025. That’s a respectable pace, although cooler than the past few years. Economic activity was affected by the record-long government shutdown in the fall, businesses figuring out how to handle trade announcements, and new investments.
Meanwhile, the US added the fewest jobs since 2003 outside recessions. While unemployment stayed low, hiring and job openings fell, meaning plenty of people couldn’t find a job. It’s an unfortunate situation for new graduates looking to get on the first rung of the career ladder, job switchers eager for a fresh opportunity, and basically anyone looking to land a job quickly outside the in-demand healthcare and social assistance sectors.
The divide between output and jobs is widening another divide: some call it a “K-shaped economy” where the rich are earning and spending more, while everyone else is stagnating. And it doesn’t look like 2026 will be much better.
“Consumers are feeling the weight of the price increases, and combined with the jobs outlook that’s worsening they say, ‘OK, when I look out, I don’t see prices going down that much, but I do see my wage is not growing and my job not being as reliable or secure as it once was,'” Atsi Sheth, the chief credit officer at Moody’s Ratings, told Business Insider.
A historical divide between job and output growth
Economist Mohamed El-Erian said in a Financial Times opinion piece before the newest GDP figures that while this “decoupling of job growth from economic growth” has happened before in the US, it’s typically occurred during recession recoveries and “not in the midst of a prolonged period of robust growth such as the one we are experiencing today.”
“We’re in this unusual environment where economic activity has remained quite robust, and yet job gains have fallen to near zero,” Gregory Daco, the chief economist at EY, told Business Insider.
The US added a measly 181,000 jobs last year; annual figures are often at least a million. It’s comparable to 2003, when the US only added 124,000 jobs in the wake of the 2001 recession.
Daco said GDP’s strength is “masking a growing bifurcation” and thinks the polarization will persist and maybe worsen because supply shocks, such as trade and tax policies, AI, and demographic changes, aren’t reversing.
“In some cases, we’re seeing a more significant effect on economic activity,” Daco said.
Some economic experts are optimistic about the year ahead. “We expect a strong year of economic growth in 2026, driven by business investment, consumer spending and fading trade headwinds,” said Rick Gardner, chief investment officer of RGA Investments. ZipRecruiter economist Nicole Bachaud thinks the job market could be at a “pivot point” after stronger hiring in January.
“Demand in other sectors that are more cyclically based instead of demographically based is starting somewhat to show signs of growth,” Bachaud said.
The gap between the rich and everyone else
The strength in the economy isn’t being felt by all. People at the top are feeling much better than pretty much everyone else. They don’t have to worry as much about rising prices of necessities and slowing wage growth.
“The wealthier, more affluent consumers are benefiting from wealth accumulation, allowing them to still spend relatively freely,” Daco said. “They’re also enjoying faster wage growth, while lower-income families are seeing reduced wage growth, near-zero real wage growth, and not much wealth appreciation outside of real estate, if they have that.”
Sheth said the benefits of GDP growth have been higher for those who earn from investments and capital gains. “They’ve benefited a lot from financial market booms, whereas those who earn their income primarily by wages have benefited some, but not as much,” she said.
Diane Swonk, chief economist at KPMG, told Business Insider that “What productivity growth we’ve seen since basically the turn of the century has accrued mostly to the owners of capital, not rank and file workers. And that means we’ve seen wealth compound, but also income inequality worsen.”
Sheth said regardless of how people refer to the disconnect happening in the economy, the “real trouble” is that wages are no longer keeping up with the rising cost of living and that people are having to pay a lot more to buy essentials.
Swonk said inflation is “the most regressive tax” because of how much lower-income households have to spend on necessities relative to their earnings.
“When those goods go up in price, obviously that affects them even harder, and so it’s a very regressive tax,” Swonk said, adding, “Oftentimes, we lose sight of the fact that it really is the level of prices that people are still reacting to.”
The Federal Reserve Bank of New York said in a report that inflation-adjusted consumer spending has increased for high-income households since 2023, but low-income household spending has mostly trended down. “The trend since 2023 is different from the trend during the pandemic recession and recovery, when consumption growth was similar across income groups,” the report said.
Amid those price increases and changes to spending habits, wage growth has drastically cooled for lower earners. Lower-income wage growth surged between 2021 and 2022, but has since cooled down a lot from the late 2022 peak. Sheth also pointed out that wage growth for hourly workers, who she said are likely “subject to much more fluctuation and downside risk than if you have a steady salary,” has also been falling faster than those not paid hourly.
Sheth said another issue is that the lower end of the wage spectrum is under more credit stress.
“We’re seeing greater credit stress in subprime auto, for instance, some parts of borrowing, but again at the lower end of the spectrum,” Sheth said. “But overall, if you compare household balance sheets today to, say, the pre-global financial crisis era, they’re generally stronger — much stronger at middle- and upper-income levels, of course, but generally stronger.”
Where we’re going in 2026 and how AI could keep widening the gap
El-Erian said in the Financial Times piece that, “This period of decoupling of employment from growth may prove more persistent and more consequential,” partly because the effects of AI are still unfolding.
AI-related investments have already made a dent in real GDP growth based on findings from the Federal Reserve Bank of St. Louis. “As firms continue integrating AI into their operations and building the infrastructure required to support it, these categories are likely to remain significant drivers of investment well into 2026 and beyond,” the authors wrote.
Laura Ullrich, the director of economic research in North America at the Indeed Hiring Lab, described a “precarious balance” between GDP and the job market. Ullrich is unsure whether employers will decide they should hire more to keep up with the relatively robust economic growth or make job cuts because they aren’t keeping up.
“I do think the uncertainty about the role AI plays adds in another interesting pivot,” Ullrich said. “Because if AI is able to take on the work of humans, then we could see economic growth without hiring picking up much. But, I’m skeptical that that’s happening in big ways right this second.”
Aside from the impact of AI, the US doesn’t need as many jobs to hold unemployment stable at a time when the population isn’t growing as quickly, so it’s possible job growth continues to be lower than previously experienced.
“The low-hire, low-fire job market isn’t just about policy changes in the new administration or about AI,” Jed Kolko, senior fellow at the Peterson Institute for International Economics, told Business Insider. “So, there may not be a quick fix.”
Even the Fed is cautious.
“While participants generally assessed that, under appropriate monetary policy, the labor market likely would stabilize and then improve this year, they continued to note that the outlook for the labor market remained uncertain,” minutes from the January Federal Reserve meeting said.
