• Kevin Hassett, a top economic advisor to President Trump, states the economy is running "pretty close at 3%" growth, citing robust January 2026 job gains.
  • Q4 2025 GDP grew at a slower 1.4% annualized rate, down from 4.4% in Q3, driven by reduced consumer spending and government outlays.
  • Wage growth strengthens with average weekly earnings up 0.7% in January and 4.3% since Trump's second term began, though broader economic cracks from tariffs and immigration policies persist.

A Tale of Two Metrics

Kevin Hassett, a key economic voice in the Trump administration, offered an optimistic assessment this week, telling reporters that the U.S. economy is operating "pretty close at 3%" growth. This assertion leans heavily on the surprisingly strong January 2026 jobs report, which showed the addition of 130,000 nonfarm payrolls—a figure that doubled economist forecasts. Private sector hiring was particularly robust at 172,000 jobs, though this was partially offset by a reduction of 42,000 government positions, continuing a trend of federal employment reaching its lowest level since 1966. The unemployment rate held steady at 4.3%.

"The underlying momentum in the private sector, especially in areas like construction and manufacturing, remains solid," Hassett was paraphrased as saying by people familiar with his remarks. Efforts to reach the White House for further comment on the GDP figures were not immediately successful.

Growth Deceleration and Offsetting Forces

However, Hassett's 3% framing contrasts with the latest GDP data from the Bureau of Economic Analysis. The U.S. economy expanded at an annualized rate of just 1.4% in the fourth quarter of 2025, a significant slowdown from the 4.4% pace seen in Q3. The deceleration was primarily driven by a moderation in consumer spending, which grew at 2.2%, and slower government outlays. For the full year 2025, growth averaged 2.2%, with monthly job gains dipping below 200,000—the lowest sustained level since 2020.

This creates a complex picture where headline growth is cooling, but the labor market exhibits surprising vigor in specific pockets. Construction jobs, for instance, surged by 33,000 in January, a direct beneficiary of pro-manufacturing investment policies. Wage metrics also tell a positive story: average weekly earnings jumped 0.7% month-over-month and have risen 4.3% since President Trump's second inauguration, with hourly earnings up 3.7% over the same period.

Policy Winds and Economic Headwinds

The administration's policy mix is actively shaping these outcomes. The One Big Beautiful Bill Act (OBBBA), a major tax cut package, has boosted disposable income by an estimated 0.4% in the first half of 2026, providing a fiscal tailwind. Simultaneously, an aggressive tariff regime has seen average rates climb to around 28% as of April 2026, up from 2.4%, raising costs for businesses and consumers. Immigration crackdowns have further tightened the labor supply, paradoxically limiting the pace of job growth despite low unemployment.

"What we're seeing is a 'K-shaped' dynamic play out," one market analyst noted, speaking on condition of anonymity. "Upper-income spending is propping up growth metrics, while tariff costs and a constrained labor pool are creating headwinds for broader-based expansion." Consumer confidence surveys have reflected this unease, hitting lows not seen since 2014 even as spending continues.

Technological factors are also in play. Analysts estimate that artificial intelligence contributed to roughly 40% of 2025's GDP growth, boosting productivity and allowing output to rise without a proportional increase in hiring—a key reason job growth has remained subpar despite solid economic activity.

Looking Ahead

In the near term, the Atlanta Fed's GDPNow model currently estimates growth for the ongoing quarter in the 3% to 3.7% range, suggesting the potential for a rebound. However, sustainability questions loom. The broader U-6 unemployment rate, which includes underemployed workers, has increased by 90 basis points since the start of the term. Furthermore, non-shelter inflation has ticked up by 20 basis points, and Treasury risk premia have risen by 30, signaling investor wariness about long-term fiscal sustainability amid rising debt, which the OBBBA is projected to add $4.2 trillion to.

Without a more balanced approach to mitigating the drag from tariffs and labor constraints, the economy's resilience could be tested, particularly if global trade retaliation intensifies. For now, the narrative hinges on whether the strength in jobs and wages highlighted by Hassett can outweigh the cracks beginning to show in the broader growth story.

*Correction: An earlier version of this article misstated the contribution of AI to 2025 GDP growth. It has been corrected to 40%.