The Illusion of Prosperity: How Strong GDP Data Masks the Risk of Stagflation in the U.S. Economy

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Although recent U.S. GDP data shows apparent prosperity, a deeper analysis of underlying economic indicators reveals a more complicated picture of stagflation. The sharp disconnect between macroeconomic growth data and micro-level public sentiment suggests that the U.S. economy still faces severe structural challenges, rather than the comprehensive victory claimed by policymakers.

According to the latest economic data, the annualized U.S. GDP growth rate in the third quarter reached 4.3%, the largest increase in over two years and far exceeded the long-term trend for two consecutive quarters. In addition, productivity surged at an annual rate of 4.9% over the three months ending September, while core CPI dropped to a four-year low of 2.6% year-on-year. This series of strong data supports President Trump’s optimistic narrative of "explosive growth and soaring productivity," seemingly validating the claim of a "Trump economic boom."

However, beneath the halo of macro data, the specter of inflationary pressure is making a comeback. After a brief period of stability, grocery prices have accelerated once again, with the monthly increase in December hitting a new high since the most acute phase of the 2022 cost of living crisis; utility costs are also climbing. Meanwhile, the latest Gallup poll shows consumer confidence has fallen for five consecutive months, nearly half of Americans consider the economic situation “poor,” and only 24% of respondents are satisfied with the state of the country—the economic confidence index has dropped to its lowest point since July 2024.

This divergence between data and sentiment reveals a core risk that markets need to watch for: While the AI investment boom may have beautified GDP figures and pushed up asset prices, it has not translated into widespread improvements in living standards. The narrow foundation of employment growth, rising real living costs, and historically low labor income share together constitute the fragile undercurrents beneath the prosperous facade, forcing investors to reassess the real health of the U.S. economy.

Structural Concerns in the Labor Market

Although overall employment data appears robust, weakness in specific sectors exposes the true local temperatures of the labor market. In December last year, U.S. nonfarm payrolls increased by 50,000—a respectable figure, but the growth base was extremely narrow. Excluding health services and private education, actual job growth for the month was only 9,000.

Looking at the whole of 2025, this trend is even more apparent. The net increase in jobs for the year was 584,000. Excluding the shocks of the 2020 pandemic and the recession of 2008-2009, this is the weakest annual growth in over two decades. Even more notable: outside the health and education sectors, employment in other industries actually shrank last year. This imbalance directly affected jobseekers’ confidence; Gallup surveys show, excluding the pandemic period, respondents who believe now is a good time to look for a job dropped to the lowest level since the end of 2014.

Dual Squeeze of Income Distribution and Inflation

On the income side, the U.S. economy is showing unprecedented polarization between capital and labor. According to Bureau of Labor Statistics data, as of the third quarter of 2025, labor’s share of economic output fell to its lowest level since records began in 1947. By contrast, corporate profits are booming. This distribution pattern means that, despite historically high asset prices, the wealth effect is mainly benefiting stock and real estate holders, exacerbating inequality concerns.

Meanwhile, the rebound in essential goods prices is eroding the purchasing power of ordinary households. The renewed rise in food and energy prices has made "affordability" once again a key word in family budgets. Although overall income growth appears to be outpacing inflation, underlying structural imbalances mean many families are not experiencing the prosperity shown in statistical data.

Fiscal Stimulus and Consumption Outlook

Looking ahead, the short-term stimulus effect of fiscal policy may become a key variable impacting consumption. Wells Fargo economists Michael Pugliese and Shannon Grein point out in a report that thanks to new measures in President Trump’s economic policy bill signed last year, exempting tips and overtime pay from taxes, many U.S. wage earners will receive larger tax refunds in the coming weeks than usual.

Wells Fargo estimates that the average family refund this year will increase by 18% to $3,750, an average increase of about $570. The Tax Foundation also estimates that taxpayers’ refunds will rise by $300 to $1,000 on average.

Where this extra money goes will depend on the type of recipient household; lower-income families are more likely to spend windfalls on consumption. Wells Fargo predicts that this package of tax measures will boost consumption by $90 billion this year, contributing about 0.3 percentage points to 2026 GDP. However, as research from the American Bank Institute shows, such extra funds directed at lower-income households usually flow into travel, leisure, and daily necessities, and its stimulating effect on consumption is often temporary.

Risk Warning and DisclaimerThe market has risks, investment must be prudent. This article does not constitute personal investment advice, nor does it consider the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views or conclusions herein fit their particular circumstances. Investing based on this is at one's own risk.

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