3% Growth, 16% Margins — and Most Americans Still Feel Left Behind

By Grace Kim

The U.S. economy is on track to grow at 3% or more from July to September, and economists now say it could sustain annual growth of 2% to 2.5% through the rest of the decade. That's a dramatic upgrade from the 1.8% ceiling most economists thought possible just a few years ago.

Yet most Americans aren't celebrating. Goods and services cost roughly 30% more than before the COVID-19 pandemic, and wages are barely keeping up with inflation — if at all.

"If most people ask, 'Am I better off now than I was four years ago,' the answer is, 'Not really,'" said Jim Baird, chief investment officer of Plante Moran Financial Advisors in Michigan.

What beat the forecasts?

Economists expected growth to slow after the spring. Tax refunds were drying up, the U.S.-hosted World Cup had ended, and high oil prices, rising inflation, tariffs and the conflict with Iran were all supposed to drag on output. Instead, consumer spending picked up and businesses boosted investment.

The numbers back it up. GDP grew at an average annual clip of 2.7% from 2022 to 2025, according to government data. Consumer spending, which accounts for two-thirds of economic growth, has risen a healthy 2.6% a quarter since 2022. The U.S. might even post frothy annual growth of 2.5% in 2026.

The driver is a once-in-a-generation business investment boom. Companies first poured money into software and technology during acute labor shortages, then piled capital into artificial intelligence as machine learning promised fatter future profits.

Is the AI productivity surge real?

Productivity — output per worker per hour — rose at an average annual rate of 2.4% from 2022 to 2025. That compares with 1.4% in the five years before the pandemic's onset in 2020.

"The AI revolution is real," said Eugenio Aleman, chief economist at Raymond James. "This is not your father's housing bubble."

Higher productivity has lifted profits to historic highs. Margins for S&P 500 companies reached almost 16% this year, versus 8% to 12% a year from 2010 to 2019.

Workers shared the gains for a while. Compensation growth hit 5% a year in 2022 — nearly double the prepandemic trend — when companies scrambled to hire. No longer. Wages and benefits now rise a little over 3% a year, not enough to outpace inflation. Millions of Americans are falling behind financially, at least for now.

Who's actually spending?

A widely debated Moody's Analytics study last year found the richest 10% of Americans — those earning $250,000 or more — accounted for a record 50% of all consumer spending. Economists dispute the exact figure but agree the wealthy are steering the economy.

The stock market plays a starring role. Shares have skyrocketed since the pandemic, driven largely by AI leaders like Nvidia, and the resulting wealth has let older Americans splurge on themselves and their kids.

"It's been an incredibly powerful driver of spending over the last several years," said Michael Pearce, chief U.S. economist at Oxford Economics.

The labor market offers a cushion. Layoffs sit near historic lows and unemployment is unusually low, giving Americans the confidence to keep spending.

Why productivity matters more than ever

The labor force is shrinking as an engine of growth. It grew about 1.4% a year from 1950 to 2025, but the Congressional Budget Office expects growth of just 0.4% a year or less through 2030. It could even shrink if more baby boomers retire and the Trump administration's immigration freeze persists.

That makes productivity the main lever left.

"It means the economy is more dependent on productivity gains," Pearce said. "If they were disappointing, the economy could slow more sharply."

Baird sees runway in the technology itself: "I think we are still in the very early innings in learning how to deploy AI effectively."

There are risks. Rising interest rates as the Federal Reserve fights inflation could threaten the stock-market boom that's juiced the whole expansion.

For now, though, the growth story holds. The catch, as Aleman puts it: "The economy is growing, but it's not translating into higher income growth and employment." Until real wages rise and inflation cools, most Americans will keep reading strong GDP reports as someone else's good news.