5 questions about the economy

It’s solid but slowing, with growth moderating from the stronger pace of 2024. However, given the current conflict in the Middle East and overall geopolitical conditions, this could be subject to change as we learn more.

For the full year, 2025 real GDP growth came in around 2.1%, but swings over the course of the year were highly uneven. In Q1, growth was weak due to import surges ahead of tariffs. Then conditions rebounded in Q2. A strong Q3 was driven by consumption, and a soft Q4 was due to the 43-day government shutdown.

Inflation has eased significantly from its peak but remains above the Fed’s target. Due to the compounding effects of prior inflation, consumers still feel higher prices even though inflation is lower than before. The labor market is softening but stable: Unemployment is steady at around 4.4% because labor force participation is falling even as job creation slows.

Globally, we are seeing major realignments in trade, geopolitics, and economic ties. Trade routes are shifting as more goods pass through Asia or via North America rather than directly from China to the U.S., which changes the structure of supply chains and influences cost dynamics.

It’s a fractured global order: Multiple rising power centers — India, Saudi Arabia, China, Brazil, Vietnam, Turkey, the EU, and Russia — are pursuing their individual regional or global ambitions. Their individual aspirations, coupled with their own economic dynamics, are coalescing with their respective ties, and relations with the U.S. and its own economic policy shifts.

And accordingly, we’re finding these nations increasingly interested in stitching together their own economic and commercial relationships. An example is the recent EU-India Free Trade Agreement (FTA). For the U.S., this means ongoing shifts in who the U.S. trades with and the mix of goods traded.

Overall, tariffs are likely to remain persistent and continue shaping economic outcomes.

Some of the topics that tend to get a lot of attention include AI investments, geopolitical volatility, tariffs, Fed rate actions, inflation, and unemployment. These themes all directly influence economic performance, exposure levels, claims costs, and investment returns.

AI and tech investment alone contributed meaningfully to U.S. GDP growth in 2025, making them essential to monitor. Geopolitics and tariffs likely started to affect goods inflation later in the year. Fed actions shape investment income and capital availability.

There are a few other things that don’t get as much public attention but can offer additional predictive insight:

• Demographic changes, particularly aging, which drives healthcare spending and shifts labor availability. Healthcare spending has emerged as a significant driver of economic growth.
• Wage trends at the regional and sector level, which influence claims and operating costs.
• Consumer sentiment, which remains weak and influences future spending and hiring. Though, notably, consumer spending has remained strong despite weaker sentiment.

AI and tech spending is robust and has been a major tailwind for U.S. economic growth over the past few quarters. That activity spans physical construction, corporate software adoption, and R&D/business investment, creating a multiplier effect across the economy.

There’s been some talk about AI propping up the economy. AI has been important for economic expansion for the reasons noted earlier. However, it’s not the only driver. Absent AI and tech, the U.S. economy would still have posted positive growth. Our take is that AI is important, but not the sole factor driving the economy.

From an operational and productivity standpoint, AI is augmenting labor demand, not reducing it. It dramatically boosts productivity — tasks once requiring hours now take minutes. In other words, productivity stands to benefit, which is important for overall economic growth.

The real transformative effect is on quality, speed, and depth of work, enabling professionals to perform more analysis and deliver higher‑quality insights. The biggest differentiators will be mindset and specialization: Those who embrace AI will outperform, while those who resist will fall behind. AI is becoming a necessity, not a luxury, for competitive relevance.