Everyday Economics: The economy expands, but massive transformation masks weakness

The Atlanta Fed’s GDPNow model is tracking 4.2% real GDP growth in Q4 2025 – a number that screams “strong economy,” powered in part by an AI investment boom and the spending power of wealthier households.

This week’s headline is Friday’s January jobs report. But the setup matters just as much: January auto sales, plus the Institute for Supply Management manufacturing and services surveys, will give us an early read on whether the foundation is weakening at the start of 2026.At the end of 2025, the deterioration in labor-market conditions looked like it had stalled. Job growth was low, but the unemployment rate stopped rising. That “stabilization” is exactly why the Federal Reserve held rates steady at last week’s meeting, emphasizing a labor market that no longer appears to be worsening rapidly – and inflation that remains uncomfortably sticky.But the labor market isn’t healed just because the headline rate stopped climbing.1) “Stabilization” has been helped by participation dynamicsA key reason t...