Moneybeat: Strong quarter, soft year

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JENNY ROUGH, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: It’s time now to talk business, markets and the economy with financial analyst and advisor David Bahnsen. David heads up the wealth management firm the Bahnsen Group, and he is here now. Good morning to you.

DAVID BAHNSEN: Good morning. Nick, good to be with you.

EICHER: David, last week’s third-quarter GDP report came in much stronger than expected, with a headline growth number north of four percent—something we have not seen in quite a while. At first glance, that suggests an economy running really well despite tariffs, trade tensions, and month after month of recession warnings.

But when you see a GDP print like this, what is the first thing you want to break apart to understand what is actually going on?

BAHNSEN: I want to look at the ingredients that go into it for the quarter piece by piece, which I have done, and I want to look at it in the context of the full year.

First of all, let us remind everyone that the quarterly number is itself annualized. So when they talk about 4.3 percent for Q3, that is not the quarterly growth, but rather the annual growth of the quarter.

When we talk about this being a hot economy, the full-year GDP growth in 2024 was 2.8 percent. Full-year growth for 2025, with this strong quarterly number, may come in at 2.0 or 2.1. So in the best-case scenario, even with the strong Q3 number, you are going to have economic growth that is much less this year than the year before. And I assure you, nobody was talking a year ago about the economy being really, really strong.

The issue in the Q3 numbers is that the consumer was, and this is never a surprise to me, spending plenty of money. That is a big ingredient, the biggest in GDP the way they measure it. Consumption is always pretty much constant for American consumers. They love to spend money, and they generally do, unless they get cut off from credit.

The two volatile inputs to GDP throughout 2025—and you mentioned the tariff and trade impact, the up-and-down numbers, the real kind of unpredictable issues that are somewhat skewed by people trying to front-run trade policy—have been both inventories and then imports and exports. What you have seen is numbers go up and down around the reality, and I think the attempt to try to optimize what is going to happen around trade policy.

But the ingredient that I have not mentioned is the one I care about the most, and I have talked about it on this podcast many times, which is business investment, the productive inputs. Output might have grown about 1.5 percent this year. That is not recessionary, but it is definitely a slowdown.

I think that is the real impact of the tariff policy: we are getting a decline in output, even though, for now, consumers are still spending money.

So I will summarize a long answer with a pretty short summary sentence. The quarterly number was better than expected. The annual number is still not great. The reasons are somewhat predictable—slowing output, but a pretty healthy consumer.

EICHER: All right, well, this being the final Monday of 2025, it feels like a natural moment to step back and take stock of the full year. One of the more interesting year-end analyses came from the president of the Fed bank in Richmond, Virginia, Tom Barkin. He was asked to describe the economy in a single word. Barkin chose the word “resilience”—not because the year was calm or predictable, but more because it really wasn’t—that the economy absorbed a remarkable amount of stress.

When you look back on 2025 as a whole, does “resilience” ring true to you? And if you had to offer a single organizing word of your own, what would it be?

BAHNSEN: Well, I would absolutely echo the term “resilience,” and I would add uncertainty or ambiguity.

First of all, the resilience is not a 2025 feature. It is a reasonably permanent feature of the U.S. economy. Yes, there was a lot of resilience in 2025 through trade uncertainty, through a change in government programs with DOGE and a lot of these layoffs, a change in immigration and some of the illegal immigration that had taken place in the prior administration, which has an impact on the labor force, and just general policy changes from a new administration—and yet an economy that was reasonably resilient.

But nobody should be surprised at the U.S. economy being resilient from things as small-ball as policy changes. Our economy was pretty resilient through a global pandemic. They shut down our economy, and we bounced back pretty quickly.

There are a lot of market issues that have come up, but this dynamism in the U.S. economy embeds a certain resilience that is a feature and a pretty dependable condition. It is a testimony to the free-enterprise system that undergirds the U.S. economy.

When I refer to the uncertainty, it is also true that we right now have ambiguity in how exactly strong our labor market is. The unemployment rate is up. The number of new jobs being created is way down. Layoffs appear to be up. And yet there is some question as to where all of this is taking place.

My best guess, based on the indicators I see in the data, is that small businesses are struggling a bit more. Larger businesses, particularly those that are tech-adjacent, are doing better. And I have got to say, that is very different than what we saw in the first Trump administration. There were a lot of benefits in the first Trump administration from tax reform and regulation reform that accrued largely to small businesses.

2026 is going to be a different year. There are a lot of things I am going to be focused on. I do have my annual paper in heavy writing mode right now, and we will have more to say on that in a week as you and I talk next Monday.

But where things stand now, Nick, is that I think the U.S. economy is resilient, and I think the U.S. economy is facing some uncertainties.

EICHER: I know you are still deep in that analysis, but I know that in your data gathering you surely see the contours of what lies ahead. So I’ll ask for a really early preview, maybe just of the biggest questions you are asking about 2026 to come—the issues that will matter most over the next year.

BAHNSEN: Yes. Well, I have hinted at some already.

Whether or not the labor market issues are going to worsen—and if they do not worsen—is the Fed really going to go through with continuing to cut rates? I already know the answer to that one. The Fed is going to continue cutting rates, if nothing else because President Trump is appointing a new Fed chair in May of 2026, and that is a precondition of getting that job.

That then pivots to a different set of questions—what that would do to asset prices if the Fed continues to cut rates beyond the neutral rate they are trying to get to.

Monetary policy is on the horizon, but that is in conjunction with where things stand with labor markets. It is a frustration for a lot of us not to be able to get real clarity, but that is part of this—letting the process play out a little bit.

I would add that the longer-term impact of tariffs is a big question going into 2026. I think that 2025 has been an incredibly unhelpful year for those trying to analyze the impact of impediments to trade, because of the political organization of the topic. Those that favor tariffs are looking for any chance they can to spike a football. Those that oppose tariffs are looking for a chance to do the same with short-term data about how grocery prices go up or down in a given month.

That is simply not where the real economic issues are. Capital flows, capital expenditures from capital flows that set the stage for business investment into production and new goods and services, total trade, and the impact of these deals that have, in some cases, really been set, and in other cases allegedly been set for foreign investment into the U.S.—these are all unknowns.

These are bigger-picture issues, and in 2026 we are going to start to get a better look at them. You do not get that month by month in the immediate aftermath. Most of these deals are not even fully codified yet.

So that is what 2026 is going to be, and that is a little sneak preview of a few of the things on my mind.

EICHER: All right. David Bahnsen—founder, managing partner, and chief investment officer of The Bahnsen Group. He writes at DividendCafe.com and at WORLD Opinions. David, it has been a great year. We look forward to continuing the conversation in 2026

BAHNSEN: Looking forward to another year, my friend. Happy New Year!

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