Economic Outlook for 2026: Weaker Job Growth and Rising Inflation

Mark Zandi, chief economist at Moody’s Analytics, has forecasted that the U.S. economy will experience a mix of stronger growth and deteriorating employment conditions in 2026. While the economy is expected to expand at a rate of 2.5%, this growth will be accompanied by weaker job growth, higher unemployment, and rising inflation. Zandi attributes these trends to the Trump administration's restrictive immigration policies and the impact of increased tariffs, which have adversely affected labor supply and demand.

NewsweekCityLabHere’s how the US economy fared under Trump in 2025The Guardian

The labor market is projected to face significant challenges in 2026, with average monthly job growth expected to decline to 49,000 from an estimated 125,000 in 2025. The unemployment rate is anticipated to rise to 4.6%, up from 4.3%. The economic slowdown in 2025, characterized by a series of weak payroll reports and a rise in unemployment to a four-year high, has raised concerns about the sustainability of job growth. The manufacturing sector has particularly struggled, shedding jobs for seven consecutive months.

Here’s how the US economy fared under Trump in 2025

Inflation is expected to increase in 2026, with the annual rate projected to rise to 3.1% from 2.9%. Zandi noted that the lagged effects of higher tariffs will contribute to this inflationary trend. Despite a recent easing in inflation rates, Americans continue to face rising prices across various goods, leading to widespread pessimism regarding the economic outlook.

Newsweek

President Donald Trump's tax cuts are anticipated to provide a temporary boost to the economy, with estimates suggesting an aggregate increase in consumer refunds ranging from $30 billion to $100 billion in the first half of 2026. These tax incentives are expected to encourage business investments in equipment and facilities, potentially bolstering economic growth. However, economists caution that any surge in consumer spending may be short-lived, as tariffs continue to exert pressure on small businesses and overall economic conditions remain uncertain.

CityLab

Critics argue that the economic policies under Trump, particularly the aggressive tariff increases, have created a precarious situation for the U.S. economy. The tariffs, which have raised the average effective tariff on imports to 18%, are seen as a significant factor contributing to inflation and employment challenges. Some economists, including Dean Baker from the Center for Economic and Policy Research, warn that a collapse of the AI bubble could lead to a sharp reduction in capital spending and further exacerbate economic difficulties.

The Guardian

While some analysts predict a solid year of growth, others express skepticism about the sustainability of this trajectory. The disconnect between GDP growth and weak labor market indicators raises questions about the overall health of the economy. Additionally, uncertainties surrounding trade policy and the potential for further tariff adjustments add to the complexity of the economic landscape.

Newsweek

• “The weaker job market expected in calendar year 2026 compared with 2025 is due to the Trump administration’s highly restrictive immigration policies and the resulting hit to labor supply, and the continued fallout on labor demand from the tariffs and increased productivity gains from the adoption of AI by more businesses,” — Mark Zandi, Chief Economist, Moody’s Analytics

Newsweek

• “2026 is shaping up to be a decent year — not a boom, not a bust, just solid trend growth,” — Olu Sonola, Head of U.S. Economic Research, Fitch Ratings

CityLab

As the U.S. navigates these economic challenges, the interplay between fiscal policy, labor market dynamics, and inflation will be critical in shaping the outlook for 2026.

Newsweek