US Personal Income Rises Despite Recession Warnings
Fresh economic data shows U.S. personal income continued to rise month-over-month, providing support for consumer spending despite persistent inflation. However, December's jobs report raised "alarm bells for imminent recession" citing slowdown in job growth and stalling housing activity, though analysts note the situation is nuanced rather than dire. Debate rages with critics citing falling GDP and climbing inflation as collapse signals, while defenders note unemployment at 4.3% remains historically low.
The fourth-quarter 2025 advance estimate showed U.S. GDP growth slowing to an annualized rate of 1.4%, a sharp drop from the 4.4% growth seen in the third quarter and well below forecasts. For the full year of 2025, the economy expanded 2.2%, a decrease from the 2.8% growth experienced in 2024. The December jobs report added only 50,000 jobs, with prior months' figures being revised downward. Key sectors showed weakness, with construction losing 11,000 jobs and manufacturing shedding 8,000 positions. In total, the U.S. added an estimated 584,000 jobs in all of 2025, the weakest performance since 2009, excluding the pandemic year. Despite the cooling job market, personal income increased by $86.2 billion in December 2025, while consumer spending rose by $91.0 billion. The spending increase was driven almost entirely by services (+$98.5 billion), as spending on goods declined. The annual inflation rate for the 12 months ending in January 2026 was 2.4%, a decrease from the 2.7% rate recorded in the previous period. While this shows a cooling trend, it remains above the Federal Reserve's target of 2%. Core inflation, which excludes volatile food and energy prices, stood at 2.5%. The national housing market is expected to see 0% price growth in 2026. Pandemic-era boom markets in the Sun Belt are now seeing a rise in underwater mortgages, where homeowners owe more than their property is worth. At the end of 2025, 1.1 million borrowers, or 2.1% of all mortgaged homeowners, were underwater. The 4.3% unemployment rate in January represented a slight decrease from 4.4% in December 2025. This figure remains significantly below the historical average of 5.67% dating back to 1948. However, the broader U-6 unemployment rate, which includes discouraged workers and those working part-time for economic reasons, was nearly double that at 8.0%.
