U.S. growth outpaced forecasts — here’s what economists say is driving it

The United States has once again confounded forecasters, stringing together faster growth than most models anticipated while inflation has cooled from its peak. After years of warnings about recession, the data instead show an economy expanding at roughly a 2.5% pace, with output, hiring, and investment all proving more resilient than expected. Economists now point to a specific mix of consumer strength, artificial intelligence spending, and policy choices to explain why growth has outpaced earlier calls for a sharp slowdown.

That outperformance has not come cost free. The latest numbers also reveal pockets of strain, from weaker federal spending to softer demand among lower income households. The question for 2026 is whether the same forces that lifted growth can keep working without stoking new financial or political risks.

Growth beat the forecasts, even as quarterly momentum cooled

Headline figures show why analysts have been repeatedly surprised. Several major forecasters now put recent U.S. gross domestic product growth near 2.5%, a rate that would mark a fifth straight year of expansion at or above that level if it holds, according to one detailed assessment of recent GDP data. That performance has come despite repeated shocks, from tariff uncertainty to a record government shutdown, and it has forced many economists to revise earlier calls for stagnation.

Beneath the annual averages, the latest quarter did show a slowdown. Output grew at a 1.4% annualized rate, missing earlier estimates and reflecting the drag from the shutdown and a sharp pullback in federal outlays. Yet analysts who study the underlying details argue that the weaker top line overstates the loss of momentum, since private demand and hiring remained solid even as temporary factors weighed on growth. In this view, the surprise is not that one quarter came in soft, but that the broader expansion has stayed intact despite repeated headwinds.

Consumers are still carrying the expansion, but in uneven ways

Household spending remains the central engine of U.S. growth. One detailed analysis of fourth quarter figures found that Consumers added 1.6 percent to growth through services outlays alone, from travel and healthcare to streaming subscriptions and restaurant meals. That pattern matches broader research showing that the annualized growth rate of real consumer spending was revised up from 1.4% to 2.5% between the first and second quarters of 2025, according to a Dec forecast, suggesting that households repeatedly spent more than initially reported.

The composition of that spending, however, exposes fault lines. Reporting on the latest GDP release notes that, underneath the overall growth figures, consumer demand is being driven primarily by wealthier households, while lower and middle income families show more caution. One detailed account explains that Underneath the headline numbers, this divergence masks weakness elsewhere in the economy, including softer goods purchases and more pressure on borrowers facing higher rates on credit cards and auto loans. The result is an expansion that still leans heavily on consumer strength, but one that is increasingly skewed toward the upper end of the income distribution.

AI and business investment are adding new fuel

If consumers are the engine, artificial intelligence and related capital spending have become the turbocharger. One influential estimate from Oxford Economics, cited in recent coverage, finds that AI investment alone added 0.4 percent to GDP in 2025, more than offsetting the damage from the government shutdown and other drags. That same analysis notes that business investment intensified toward the end of the year as companies raced to build data centers, upgrade cloud infrastructure, and integrate generative tools into workflows, a pattern highlighted in a Feb summary of corporate spending.

Economists see this wave of AI outlays as both an immediate support for growth and a potential source of future productivity gains. One detailed GDP report notes that the reliance on A.I. has helped businesses become more confident about hiring and capital expenditures, even as they navigate higher interest rates and political uncertainty. At the same time, the same coverage warns that the economy could become more vulnerable if investors sour on the industry or if promised efficiency gains fail to materialize, since so much recent optimism rests on expectations for continued A.I. investment.

Policy shocks and government spending have distorted the data

Alongside private demand, government decisions have played an unusually visible role in shaping recent GDP prints. The record length of the latest federal shutdown created statistical noise, particularly in the fourth quarter. One analysis of the data shows that federal spending fell 16.6% after rising 2.7% in the prior quarter, a swing that alone subtracted significantly from measured output, according to a detailed breakdown of Federal spending. Economists stress that such moves do not necessarily reflect a collapse in underlying activity, but they do obscure the true pace of private sector growth.

State and local decisions have also mattered. One assessment of the inflation and spending data notes that the economy is likely to bounce back as delayed projects restart, but warns that prolonged shutdowns are not harmless, particularly when they disrupt payments from state and local entities, according to comments from Heather Long. The result is a growth profile that looks choppy from quarter to quarter, even as the underlying trajectory remains stronger than many forecasters expected.

Forecasts for 2026: steady expansion with AI and consumers in focus

Looking ahead, many major institutions now expect the United States to keep outperforming earlier predictions. One widely followed outlook projects that GDP Growth Is Projected to Outperform Economist Forecasts, with GDP expected to expand 2.5% in 2026 on a fourth quarter to fourth quarter basis, according to a Jan forecast. Another detailed analysis similarly sees the economy growing at a 2.5% annualized pace on average in 2026, supported by resilient consumer spending and income gains that should underpin demand, according to a Feb survey of projections.

Policy analysts, however, warn that the path is far from guaranteed. A detailed policy brief describes a strange moment for the U.S. economy, with solid growth fueled by consumer spending but constrained by limited fiscal space and uncertainty about how AI will reshape jobs and wages, according to a Last year overview. Another outlook characterizes the coming year as an Economic Outlook with Moderate Growth With a Range of Possibilities, emphasizing that U.S. consumer spending and capital expenditures on AI are likely to remain central drivers, as described in a Nov analysis. Together, these projections suggest that the same forces that pushed growth above forecasts in recent years, from high income spending to AI investment, are expected to keep working, even as policymakers and investors watch closely for signs that the surprise strength is starting to fade.

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*This article was developed with AI-powered tools and has been carefully reviewed by our editors.