US President Donald Trump is presenting the country’s economic performance as a success ahead of the midterm elections on November 3. Yet many Americans are experiencing a different reality at gas stations, supermarkets and in the housing market, where financing costs remain high.

Consumer confidence is currently weaker than during the coronavirus pandemic in 2020 or the 2008 financial crisis, according to a University of Michigan survey. Unlike during those periods, however, the United States is not in recession. The elections will test public sentiment toward Trump and could also alter the Republican majority in Congress.

The economy has continued to grow. Gross domestic product expanded at an annualized rate of 3.4 percent in the third quarter of 2026, following growth of 2.2 percent in the second quarter and 2.5 percent in the first. Over the past year, GDP increased by 2.3 percent, below the 3.0 percent recorded in 2024 and the 2.9 percent recorded in 2023 under President Joe Biden.

Klaus-Jürgen Gern of the Kiel Institute for the World Economy described current growth as robust but not particularly rapid. Thomas Obst of the German Economic Institute said private consumption and investment were supporting expansion despite weak consumer sentiment.

Inflation remains a major burden. Consumer prices in September were 3.7 percent higher than a year earlier, well above the US Federal Reserve’s two-percent target. Energy prices, particularly for gasoline and diesel, have pushed inflation higher after it had declined earlier in 2026. Obst linked the renewed energy pressure to the conflict in Iran.

Gern said the benefits of growth were concentrated mainly among companies and wealthier households, while Americans with lower incomes and fewer assets continued to struggle with higher living costs. Trump’s tariffs have also added to consumer prices. Federal Reserve calculations found that tariffs introduced in 2025 had raised consumer-goods prices by 2.9 percent by February 2025. Yale University’s Budget Lab estimated that the impact would cost the average household $1,100 this year.

The tariff effects have so far been less severe than some analysts expected, Gern said, because the duties actually collected were below the announced rates. However, trade barriers have complicated production chains and put pressure on export-oriented companies. Manufacturing output has not fallen overall and has instead increased slightly recently.

The labor market is losing momentum. The unemployment rate stood at 4.2 percent in September, but only 29,000 jobs were created outside agriculture. In 2023 and 2024, the US economy added roughly 200,000 jobs per month under Biden. The promised expansion of well-paid manufacturing employment for the middle class has not materialized, according to Obst.

Gern noted that the labor force itself was also growing more slowly, partly because net immigration had practically come to a standstill. This has helped keep unemployment just above four percent despite weak job creation.

Business investment, especially in artificial intelligence, semiconductors, data centers and energy infrastructure, is providing a significant boost to the economy. Gern said the artificial-intelligence boom was an important reason for the current strength but could not primarily be attributed to Trump administration policies. Whether the large investments will generate sufficient long-term returns remains uncertain, raising the possibility of overinvestment.

Federal debt represents another significant risk. US government debt exceeded $40 trillion in August for the first time. According to Gern, the debt burden had reached 125 percent of GDP, while increased financing needs were pushing up market interest rates and government interest costs.

The distributional effects of Trump’s policies are also uneven. An analysis by The Economist estimated that the poorest ten percent of US households could lose almost three percent of their income on average in 2026, while the richest ten percent could gain nearly three percent. Middle-income households could face losses of more than $400.

The US economy is therefore neither in crisis nor experiencing an exceptional boom. Consumption remains stable and investment in artificial intelligence is supporting growth, but inflation, weaker hiring and high debt are creating vulnerabilities. As Obst put it, the economy retains considerable momentum, while cracks are beginning to appear in the system.

Sources: Tagesschau.