Year in Review: Key Economic Trends from 2025 and What We’re Watching in 2026

Highlights: 

• The U.S. economy's expansion is increasingly narrow, marked by a K-shaped divide where higher-income households demonstrate resilience, while lower- and middle-income consumers face persistent affordability challenges from sticky inflation and rising costs for essentials.

• Businesses must monitor rising consumer credit stress signals—specifically increased delinquencies in student loans, auto loans, and credit cards—as they indicate a lack of financial cushion and are early warnings of broader financial distress across the near-prime and subprime segments.

In a special holiday edition of the Market Pulse podcast, the Equifax Advisors reflected on key economic themes that shaped 2025 and took a look ahead at what you should know as we begin 2026. 

Advisors Tom O’Neill, Dave Sojka, Jesse Hardin, and Maria Urtubey, and Emmaline Aliff weighed in on AI adoption, monetary policy, consumer stress, and the growing divide within the U.S. economy.

What is the current state of the U.S. economy heading as we enter 2026?

The economy continues to expand, but that growth is becoming increasingly narrow. Inflation remains elevated and sticky, job growth is slowing, and the benefits of economic activity are flowing disproportionately to higher-income households. While financial markets and headline indicators suggest resilience, many consumers feel worse off due to rising costs for essentials like housing, insurance, healthcare, and utilities.

Why does the economy feel strong for some households but strained for others?

This disconnect reflects a deeply entrenched K-shaped economy. Higher-income households continue to benefit from strong balance sheets, asset appreciation, and equity market gains, allowing them to spend freely. Meanwhile, lower- and middle-income households face affordability pressures, slower income growth, and greater reliance on credit. This widening gap explains why consumer sentiment remains weak despite positive top-line economic indicators.

How is artificial intelligence influencing households and the broader economy?

AI adoption has accelerated at the individual level, with people using it for everyday decision-making such as trip planning, budgeting, shopping, and even learning technical skills. From an economic standpoint, AI has the potential to boost productivity and long-term growth, but it also introduces disruption. Certain job functions may become redundant while new roles emerge, creating uneven impacts across industries and income levels. The long-term benefits depend on how quickly workers and businesses adapt.

Have interest rate cuts helped consumers in 2025?

The Fed’s rate cuts have helped stabilize financial conditions, but relief has not been immediate for most households. Auto loans and credit card rates tend to respond slowly to policy changes. Meanwhile, mortgage rates increased following the last two rate cuts by the Fed due to change in the 10 Year Treasury rates. While lower rates may support borrowing and spending over time, affordability challenges persist—particularly in high-cost housing markets where even significant rate reductions may not meaningfully improve access for median-income households.

What are the most concerning consumer stress signals right now?

One of the most significant red flags is rising student loan delinquency following the resumption of payments and the reporting of student loan delinquencies to credit bureaus. Missed payments have led to meaningful credit score declines for many borrowers, limiting access to other forms of credit. Delinquencies in auto loans and credit cards are also increasing, especially among near-prime and subprime consumers. These trends suggest that many households are operating with little financial cushion.

Why does payment hierarchy matter when evaluating consumer risk?

Payment hierarchy reflects which obligations consumers prioritize when it is time to pay their bills. Historically, auto loans rank high because transportation is essential for work. When auto delinquencies rise, it often signals broader financial distress and increases the likelihood of future credit card or personal loan delinquencies. Monitoring shifts in payment behavior provides early warning signs of deeper consumer stress.

How resilient have equity markets been in 2025?

Equity markets have remained surprisingly resilient despite inflation, geopolitical uncertainty, and policy shifts. However, this strength is concentrated among a narrow group of companies and investors. Market gains have disproportionately benefited affluent households, reinforcing wealth inequality. While equity performance supports consumer spending at the top end, it does little to alleviate financial pressure for the majority of households.

What role does economic data play during periods of government shutdown or uncertainty?

Disruptions to official economic data complicate policymaking and forecasting. However, private-sector and alternative data sources have become increasingly important, helping fill gaps when government data is delayed or unavailable. This diversification of data improves resilience but also underscores the importance of transparency, consistency, and critical interpretation.

What key indicators should businesses and policymakers watch in 2026?

The panel highlighted several critical signals:

• Labor market strength, particularly job creation and wage growth

• Inflation persistence and cost-of-living pressures

• Consumer savings rates and debt levels

• Credit performance across student loans, auto, and cards

• Whether the lower half of the K-shaped economy begins to stabilize

Market Pulse will continue tracking these trends and translating data into actionable insights as the economy enters a pivotal year ahead. Register for our January Market Pulse webinar and subscribe to our Market Pulse podcast. Discover monthly trend reports on everything from auto to consumer credit on the Market Pulse Hub.