The 2025 Economic Slowdown
The final numbers of 2025 have arrived, and they are not good. Last year saw a significant economic slowdown, affecting jobs, GDP growth, savings, the deficit, and the lives of millions of hard-working Americans.
I will break it down section by section.
Jobs
The job market came to a screeching halt last year, shifting from 120,000 jobs being created each month in 2024 to just 15,000 in 2025 for a total of 181,000 across the full year.
Companies laid off 1.2 million workers, an increase of over 50% from the year before and the highest amount since 2020. The unemployment rate increased from 4.0% to 4.4% from January 2025 to December, and the labor participation rate decreased.
Blue-collar workers were hit especially hard, with a net loss of 108,000 manufacturing jobs, along with losses in other sectors such as mining, transportation, and warehousing, totaling over 160,000 blue-collar jobs lost.
Wages
The lowest earners saw their real wages, wages adjusted for inflation, decline in 2025. This means they had less money to spend than before, and it is a sharp reversal from the several years prior, when that same group saw its wages rise faster than everyone else's.
The average real wages for all workers increased by 1.5%, but that is against headline inflation. Key areas of spending, such as healthcare, food, electricity, heating, and automotive repairs, rose faster than average inflation, creating a strain on the middle class.
One way we can see this is by looking at the personal savings rate, which is how much people put into savings after paying their expenses. It decreased from 5.1% in January 2025 to 3.5% in November. One-third of Americans reported having less emergency savings than they did the year before.
We can also see the impact on debt, with total outstanding credit card debt reaching a record high of $1.28 trillion. A LendingTree survey found that one-quarter of buy now, pay later loans were used for groceries, and that over 40% of borrowers had paid at least one buy now, pay later loan late in the past year.
Taxes
While real wages were stagnant or declining, America is set to get some relief with its tax returns this year. The average of early tax returns so far has increased from $2,065 to $2,290, a 11% increase of $225. While refunds do provide temporary relief, broader tax changes shifted in ways that hurt lower- and middle-income earners. That was seen in the tax known as tariffs.
The average household paid $1,000 in tariffs last year, and that amount is expected to increase to $1,300 this year. The government needs taxes. We have a massive deficit. So when you hear that income taxes are being reduced, they have to be offset by either more debt or higher taxes outside of income.
In this case, the top 1% received the largest tax breaks, while working- and middle-class Americans are paying for it through tariffs.
Income taxes are progressive, meaning the more you make, the more they impact you. Tariffs are regressive, meaning the lower your income, the bigger the burden. This is a bad shift for hard-working Americans.
Tariffs
Tariffs were intended to do three things, according to the current administration: generate revenue to reduce income taxes, reduce the trade deficit, and create US jobs, particularly in manufacturing.
American consumers are paying 90% of the tariff cost, and, as we discussed above, that burden is heaviest on the lowest earners. The trade deficit was $900 billion in 2024. It is still $900 billion in 2025. Tariffs failed to reduce it because they were applied to food America doesn’t grow and products America doesn’t make. There weren’t any alternatives to switch to, and companies can’t spin up new factories that quickly. Manufacturing didn’t attempt to take on this production, as 108,000 manufacturing jobs were lost last year.
Tariffs failed to achieve the administration’s goals, but did exactly what economists said they would.
The economic drag from tariffs was bad, and now the legal foundation for them has collapsed. The Supreme Court ruled that Trump’s implementation of many of the tariffs was illegal. Whether this will result in refunds, or tariffs applied through other means, or Congress finally voting on tariffs is yet to be seen. That means more uncertainty for the year ahead, and uncertainty is bad for the economy.
Uncertainty means companies delay hiring, as we saw last year with the almost non-existent job growth. Investments are put on hold, and purchasing slows, stalling supply chains. When companies can’t reliably plan for the future, workers and the economy take the hit.
Federal Impact
Gross Domestic Product growth saw major swings across the year, with an initial decrease in the first quarter as companies rushed to import as many products as they could afford to get ahead of tariffs, followed by big gains in quarters when companies imported little while relying on their inventory stockpiles. When all of that settled, the fourth quarter saw a small 1.3% growth, resulting in a 2.3% GDP growth for the full year compared to 2.8% in 2024 and 2.9% in 2023.
The US economy slowed down.
The deficit remained at $1.8 trillion, the same as in 2024, but the national debt increased to $2.2 trillion, reflecting changes in interest costs and Treasury cash management.
Conclusion
2025 saw a significant economic slowdown, and tariffs played a major role in that, both directly through the price increases businesses and consumers had to deal with and indirectly through the continued uncertainty as tariffs were declared, adjusted, reversed, and declared again.
The lower your earnings, the more you were affected by this economy, with the lowest earners seeing their buying power decline and their emergency savings deplete, while the middle class struggled to stay afloat, saving less and increasing their reliance on debt to get by.
America is not on the right track. A course correction is desperately needed because if we continue down this path, 2026 will not be any better. The only way that happens is if Congress looks at the data and decides to end the trade war tariffs and invest in our nation and its workers.
https://www.lendingtree.com/personal/buy-now-pay-later-loan-statistics/
https://www.bea.gov/