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

Despite the recent GDP data in the United States showing superficial prosperity, a deeper analysis of underlying economic indicators reveals a more complex stagflation scenario. The stark disconnection between macro growth data and micro livelihood experiences suggests that the U.S. economy still faces severe structural challenges, contrary to the comprehensive victory claimed by policymakers.

According to the latest economic data, the annualized GDP growth rate for the third quarter reached 4.3%, marking the largest increase in over two years, and has exceeded long-term trend values for two consecutive quarters. Additionally, productivity grew at an annualized rate of 4.9% over the three months ending in September, and the core CPI fell to a four-year low of 2.6% year-on-year. This series of strong data supports President Trump's optimistic rhetoric about "explosive growth and soaring productivity," seemingly validating claims of "Trump's economic prosperity."

However, beneath the glow of macro data, the specter of inflationary pressure is re-emerging. Grocery prices have accelerated after a brief period of stability, with the monthly increase in December reaching a new high since the most severe period of the 2022 cost-of-living crisis, and utility costs have also risen. Meanwhile, the latest Gallup poll shows that consumer confidence has declined for five consecutive months, with nearly half of Americans considering the economic situation "bad," and only 24% of respondents feeling satisfied with the current state of the nation, causing the economic confidence index to drop to its lowest point since July 2024.

This divergence between data and sentiment reveals a core risk that the market needs to be wary of: the investment boom in artificial intelligence, while beautifying GDP figures and driving up asset prices, has not translated into widespread improvements in livelihoods. The narrow foundation of job growth, rising real living costs, and the historically low share of labor income collectively form a fragile undercurrent beneath this facade of prosperity, forcing investors to reassess the true health of the U.S. economy.

Structural Concerns in the Job Market

Although overall employment data appears robust, weaknesses in specific sectors expose the true temperature of the job market. In December, non-farm employment in the U.S. increased by 50,000, a figure that seems acceptable, but the growth base is extremely narrow. Excluding health services and private education, the actual net new jobs for the month were only 9,000.

Looking ahead to the full year of 2025, this trend becomes even more pronounced. The net increase in jobs for the year was 584,000, which, when excluding the impacts of the COVID-19 pandemic in 2020 and the Great Recession of 2008-2009, represents the weakest annual growth performance in over twenty years. More notably, employment in sectors other than health and education actually shrank last year. This imbalance directly affects job seekers' confidence, with Gallup surveys indicating that, excluding the pandemic period, the proportion of respondents who believe it is a good time to find a job has fallen to its lowest level since the end of 2014.

Dual Pressure of Income Distribution and Inflation

On the income side, the U.S. economy is exhibiting an unprecedented divergence between capital and labor. According to data from the Bureau of Labor Statistics, by the third quarter of 2025, the share of labor in economic output had fallen to its lowest level since records began in 1947. In contrast, corporate profits are thriving. This distribution pattern means that, although asset prices are at historical highs, the wealth effect primarily benefits stock and real estate holders, exacerbating concerns about inequality At the same time, the rebound in the prices of essential goods is eroding the purchasing power of ordinary households. The renewed rise in food and energy prices has made "affordability" once again a key term in household budgets. Although the overall income growth seems to outpace inflation, the underlying structural imbalances mean that many families do not feel the "prosperity" reflected in the statistics.

Fiscal Stimulus and Consumption Outlook

Looking ahead, the short-term stimulative effects of fiscal policy may become a key variable affecting consumption. Economists Michael Pugliese and Shannon Grein from Wells Fargo pointed out in their research report that thanks to the new measures regarding tax exemptions for tips and overtime pay in the economic policy bill signed by President Trump last year, many American wage earners will receive more tax refunds in the coming weeks than usual.

Wells Fargo expects that the average tax refund for American households will increase by 18% this year to $3,750, an average increase of about $570. Estimates from the Tax Foundation also indicate that taxpayers could receive an additional $300 to $1,000 on average.

The destination of this extra funding will depend on the type of households receiving it, with low-income families often more inclined 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 GDP in 2026. However, as shown by research from the Bank of America Institute, such additional funds targeted at low-income families typically flow into travel, leisure, and daily necessities, and their stimulative effect on consumption is often temporary