Has the US Economy Improved Over the Past Year?
Has the US economy improved over the past year? A January 2026 breakdown of inflation, jobs, interest rates, growth, and what the next data releases could signal.
As of January 6, 2026, the US economy looks better in some of the ways that matter most—especially inflation and interest rates—but weaker in others, most notably hiring momentum.
The cleanest improvement is on prices. Inflation has cooled materially versus a year ago, which has helped real paychecks regain a little ground. The Federal Reserve has also moved from holding rates high to cutting them, easing financial pressure across mortgages, credit cards, and business borrowing.
But the labor market has softened. Unemployment is higher than a year ago, and payroll growth has slowed sharply. Meanwhile, parts of the economy that tend to lead turns—like manufacturing—have remained in contraction.
This article breaks down what has improved, what has worsened, and what to watch next as fresh data lands in January.
“The story turns on whether disinflation can continue without a broader slowdown in jobs and demand.”
Key Points
Inflation has cooled over the past year, with the latest CPI reading showing prices up 2.7% over 12 months through November 2025.
The Federal Reserve cut rates in December 2025, bringing the fed funds target range to 3.5%–3.75%, shifting policy from “tightening” to “easing.”
The labor market has weakened compared with a year ago: unemployment was 4.6% in November 2025 versus 4.2% in November 2024.
Payroll growth has slowed substantially, with November showing only modest job gains and a longer pattern of limited net job growth since spring.
Growth has not collapsed—GDP was strong in the third quarter of 2025—but the mix is uneven and some forward-looking signals look soft.
Manufacturing ended 2025 in contraction, reinforcing the idea that “high rates + weaker goods demand” is still a drag.
The next few January releases—jobs, inflation, and GDP updates—will shape the 2026 narrative quickly.
Background
When people ask whether the economy has “improved,” they often mean two different things at once.
One meaning is macro: is the economy growing, is inflation under control, and is the financial system stable? By that yardstick, the US has looked resilient. Growth has continued, inflation has eased, and the Fed has been able to cut rates without panic.
The other meaning is lived: are jobs plentiful, are wages keeping up, and do households feel less squeezed? By that measure, progress is slower. Even if inflation is cooling, the price level is still elevated compared with the pre-spike world. A grocery bill that stopped rising fast is still a high grocery bill.
A few basic terms help frame the last year. Inflation is usually tracked through the Consumer Price Index, which measures changes in prices paid by urban consumers. The Fed targets inflation using a different measure, but CPI remains the public’s headline gauge. The fed funds rate is the Fed’s main policy lever, and it influences borrowing costs across the economy. The ISM manufacturing index is a widely watched survey that signals whether factory activity is expanding or contracting.
A complicating factor over the past year is that some government economic releases were delayed by the autumn 2025 shutdown, creating gaps and making month-to-month comparisons less clean than usual.
Analysis
Political and Geopolitical Dimensions
Economic interpretation is political fuel, and 2026 is already shaping up that way. With midterm elections looming later in the year, the fight is less about whether a recession is officially “here” and more about who owns the cost-of-living story.
The Fed is also operating in a noisier environment. Rate cuts help households but can be framed as either prudent management or a sign that something is breaking. Internal disagreement around the December decision has fed that narrative tension, even though debate inside the central bank is normal when the economy sits near a turning point.
Externally, geopolitics still matters through energy prices, supply chains, and trade policy. Even without a single shock dominating headlines, persistent fragmentation pressures costs and investment decisions in ways that can keep inflation sticky or distort where job growth shows up.
Economic and Market Impact
On the “improved” side of the ledger, inflation is lower than a year ago. Through November 2025, CPI inflation was 2.7% year over year. At the same time, nominal wages were rising faster than prices—average hourly earnings were up 3.5% over 12 months—implying modest real wage gains.
Monetary policy has also eased. In December 2025, the Fed lowered its target range to 3.5%–3.75%. That matters because it changes the direction of travel for borrowing costs. Even if rates remain elevated by the standards of the 2010s, the shift from “higher for longer” to “cutting” tends to loosen financial conditions and stabilize risk appetite.
On the “worse” side, the labor market is clearly cooler than a year ago. Unemployment rose from 4.2% in November 2024 to 4.6% in November 2025. Payroll growth has also slowed, with November adding only 64,000 jobs, and a broader pattern of limited net job growth since April.
The economy’s internal composition is another caution sign. Job gains have been concentrated in a few areas such as health care and construction. Meanwhile, manufacturing ended 2025 still contracting, with the ISM index below the 50 line that separates expansion from contraction.
Growth itself is mixed. Third-quarter GDP was strong, but one strong quarter does not settle the question of where 2026 is heading, especially with job growth slowing and some leading indicators trending down.
A realistic way to think about “improvement” is to split the economy into two tracks: inflation and rates are improving, while employment momentum is weakening. The risk is that the second track eventually drags the first.
Social and Cultural Fallout
This is where the disconnect lives. A year of easing inflation does not instantly feel like relief because the level of prices remains high. Households tend to experience the economy as a set of monthly bills—rent, groceries, insurance, transport—not as a percentage change statistic.
At the same time, higher unemployment (even if still historically moderate) changes behavior. People become more cautious about switching jobs, negotiating raises, or taking on new debt. Employers become pickier. The result can be a cultural shift toward risk aversion, even if the macro data still looks “fine.”
There is also a psychological split between asset-holders and non-asset-holders. Rate cuts and soft-landing narratives can lift markets, while many renters and lower-income households feel only the lingering aftereffects of higher prices.
Technological and Security Implications
One genuine bright spot is investment tied to data centers, artificial intelligence, and electrification. That spending supports pockets of construction and high-skill employment, and it can boost productivity over time.
But it also creates unevenness. Tech-linked capital spending can coexist with weakness in traditional manufacturing and goods demand. Security-wise, the more the economy depends on large-scale digital infrastructure, the more sensitive growth becomes to cyber risk and system resilience—issues that rarely show up in standard “is the economy improving?” debates until something breaks.
What Most Coverage Misses
Most coverage treats the economy as one headline number: inflation, unemployment, or GDP. The more revealing story is the internal trade-off: the US appears to be buying disinflation with a slowdown in hiring, and it is not evenly distributed across sectors.
Another underplayed point is how much measurement noise the shutdown created. When key releases are delayed and some month-to-month comparisons shift to multi-month comparisons, the public gets a blurrier picture—and so do decision-makers. That raises the risk of overreacting to a single datapoint, especially at moments when the economy is close to a fork in the road.
The final blind spot is time. Even if rates are being cut now, monetary policy works with lags. That means some of the “relief” effects may not show up for months, while some of the “tight policy” drag may still be working its way through employment and investment.
Why This Matters
For households, the near-term question is whether real incomes keep improving—wages rising faster than prices—without a meaningful deterioration in job security. Lower inflation helps, but job loss risk changes everything.
For businesses, the issue is demand stability and financing costs. Rate cuts reduce pressure, but slowing hiring and weak manufacturing can signal softer demand ahead. Planning becomes harder when the economy is neither clearly accelerating nor clearly contracting.
For investors, the balance is between easing policy (supportive) and weakening labor momentum (a warning sign). Markets can rally on rate cuts, but if cuts are driven by economic weakness rather than controlled disinflation, sentiment can turn quickly.
Key dates to watch in January include the next employment report, the next CPI release, and the Fed’s late-January meeting. The next GDP update later in the month will also shape expectations about whether 2025’s strength carried into the end of the year.
Real-World Impact
A warehouse supervisor in the Midwest sees overtime hours tighten. Headcount is stable, but managers stop backfilling departures. Workers keep their jobs, yet feel the job market cooling.
A health care administrator in California has the opposite experience. Recruiting remains difficult, wages keep rising, and demand feels steady, reinforcing the sense that the economy depends heavily on a few “always-on” sectors.
A small home renovation business in Florida notices financing constraints easing slightly as rate expectations shift. Leads improve, but customers still hesitate because insurance and everyday costs remain high.
A first-time buyer in Texas runs the numbers again. Even if mortgage rates drift down, the monthly payment is still steep at today’s home prices, so the feeling of affordability relief is limited.
The Road Ahead
The economy has improved over the past year in the ways that typically set the stage for stability: inflation is lower, and interest rates have started to come down. That is real progress.
But the labor market has softened, and the slowdown in hiring is the main reason the “improved” story remains contested. If job growth re-accelerates while inflation stays near current levels, the past year will look like a successful transition. If unemployment keeps rising and job gains remain narrow, the past year may be remembered as the calm before a broader cooling.
The signposts are straightforward: inflation staying contained, unemployment stabilizing, and job growth broadening beyond a small set of sectors will determine whether 2026 becomes a vindication of the soft landing—or the start of a slower, more fragile phase.
