Can the economy overcome growing headwinds? 5 dynamics to watch

Russell Price, Chief Economist – Ameriprise Financial  

November 17, 2025

The U.S. economy has faced several notable challenges this year: Tariffs have been implemented at levels not seen in decades, job creation has slowed dramatically and inflation is once again creeping higher.  

Despite these challenges, U.S. economic growth has generally remained robust. Can the U.S. economy continue to remain resilient amid the headwinds of tariffs, a weak labor market and rising inflation? 

Here are five dynamics to watch: 

1. Consumers are still in control — for now 

Consumer spending has been the primary fuel for growth this year. However, the recent slowdown in job growth, combined with higher prices, could cool consumer activity over the final months of the year.  

In our view, weakness in net new hiring and rising prices are both largely related to recent tariff implementations.  

Businesses seem to be taking a “wait and see” attitude in their hiring decisions until they gain more clarity on how tariffs may impact demand and profit margins. So far, with consumers still engaged and corporate profits remaining strong, worst-case fears seem to have been overstated.  

2. Resurgent inflation is likely to be a temporary challenge 

We’re forecasting inflation to peak at a rate of about +3.2% to +3.4% by year-end. Inflation should start to subside thereafter, as the pass-through of tariff costs should moderate. Lower housing rental rates should also help lower price pressures as we move into the new year.  

3. A one-sided job market favors employers 

The outlook for job growth is murkier. It remains to be seen how much of the recent weakness in hiring can be attributed to lasting changes, such as workers being replaced by artificial intelligence (AI), and how much may be temporary business leader caution amid tariff uncertainty.  

A recent survey by the New York Federal Reserve found AI’s impact on hiring to be modest thus far. The results found just 1% of service firms reported laying off workers due to AI over the last 6 months.   

While hiring has stalled, layoffs remain surprisingly low. In our view, this signals caution on the part of business leaders rather than an outright decline in labor demand. 

In recent months, new claims for unemployment insurance have been well contained, particularly in relation to historical averages.  

Source: FactSet

For now, we believe net new hiring should slowly improve in the months ahead, but to modest levels. And while AI might not be a driving force of layoffs currently, its negative influence on the labor market will likely grow over time. And admittedly, our outlook for this situation inherently contains significant uncertainty given its uniqueness.  

4. Temporary Q4 weakness could transpire  

Weak economic activity in the fourth quarter is possible. However, if a rough patch were to occur, we believe it would likely be relatively short-lived. The tariff situation remains a key challenge and ongoing turmoil surrounding interest rates could extend the overhang of uncertainty. 

5. Policy changes have the potential to boost spending 

Consumer spending could catch a tailwind early in the new year from certain provisions of the One Big Beautiful Bill Act. The legislation, signed into law in early July, cut taxes on tips and overtime pay (up to certain income levels) and provided a $6,000 tax deduction for many seniors.  

Beginning in 2026, these provisions should put a bit more money in consumer pockets. Federal Reserve actions to lower interest rates should also offer the economy some added stimulus to reenergize demand and, thus, the need for workers.  

Bottom line 

Despite recent economic challenges, consumer spending and business investment have remained sound, with solid economic growth over recent months. Healthy consumer finances seem to be lending a foundation to activity, while business spending, heavily driven by AI investments, has also remained a source of economic strength.  

However, risks to the broader environment remain, and future gross domestic product (GDP) growth will hinge on the U.S. economy’s ability to rise above obstacles like tariffs, sticky inflation and weak job creation.  

Get personalized guidance during economic uncertainty 

If economic uncertainty is making you feel uneasy, reach out to your Ameriprise financial advisor. They can help you identify strategies that can help you feel more financially confident.