2025 in Review: Business Insights Summary

With 2025 now behind us, our team has assembled a concise wrap‑up of last year’s most significant economic events. These highlights are designed to keep you informed about the forces influencing everything from consumer behavior and interest rates to supply chains and workforce dynamics.

Tariffs

The year began with the prospect of new tariffs, or taxes on goods imported into a nation, paid by the importer. On April 2, the administration unveiled tariff rates on nearly every country, ranging from 10% to 50%. After a week of financial market volatility, the administration announced a 90-day pause, during which nations were expected to sign new trade deals with the US. Some deals were signed, many were not, and tariffs increased over time. The administration also introduced product-specific tariffs: import taxes applied regardless of origin (e.g., a 25% tariff on cars), along with product-specific tariff exemptions, notably on computer chips (which are key to AI). Due to the various country and product tariffs, by year-end, the average effective tariff rate was about 10%, representing the average paid across all imported goods.

Inflation

Inflation began the year at 3.0% year-over-year (YoY), meaning a basket of goods and services was up 3.0% compared to the prior year. This was an improvement from the 9.1% peak a few years earlier. Inflation fell to 2.3% by April, near the Fed’s 2.0% target, but later rose to 3.0% in September before receding to 2.7% in November. Within the data, goods inflation, which covers items like clothes, cars, and machinery, rose steadily in Q4. It started at -0.1% in January (indicating falling prices) but ended at 1.8%; potentially because of tariffs.

Labor

Unemployment rose from 4% in January to 4.4% by the end of the year as the pace of job gains fell from an average of 173,000 per month in 2024 to around 23,000 per month in the second half of 2025. Wage inflation pressures persisted through 2025 and ended the year at 3.8%. Demographics may be playing a role: as outlined in our research, the labor pool is growing more slowly, which may be preventing unemployment from rising further despite slower job additions.

GDP

Despite the headwinds from tariffs, inflation, and a slowing labor market, the overall economy continued growing.  GDP did fall -0.6% in Q1, but this was mainly due to technical issues related to tariff front-running.  Growth returned to a rapid 4.3% in Q3. The US consumer has been resilient, with real consumer spending still growing at 2.1% YoY in September, down only somewhat from 3.3% in January.  Business investment was strong, with AI-related investments in computer hardware and software outweighing a pullback in residential construction. 

Spending Bill

In July, the government passed the One Big Beautiful Bill, extending prior tax cuts and introducing new ones, such as eliminating taxes on tips and Social Security payments. Defense spending also increased. Overall, the bill is expected to raise the budget deficit by USD 3–4 trillion over a decade, potentially causing total government debt to reach USD 62 trillion by 2034.

Interest Rates

The Fed paused rate cuts early in the year after reducing the benchmark from 5.50% to 4.50% in late 2024, likely due to tariff-related inflation concerns. Cuts resumed in September of this year, bringing the rate to 3.75%. While inflation remains a concern, the Fed appears more focused on labor conditions.

AI

Finally, 2025 was a pivotal year for AI. Economic growth was supported by capital investment in AI infrastructure through the development of data centers and related infrastructure, with persistent strong growth in spending on these projects. This form of spending was one of the major drivers of nonresidential construction. Also, there was the potential “wealth effects” from AI-related equities supporting financial markets, which boosted consumption and overall growth.

Thank you for your support and we look forward to connecting in the new year. To contact our team or view more reports, visit TheHartford.com/gic.

Best,

Shailesh Kumar, Head of Global Insights Center

The information, views, opinions, and recommendations provided in these materials is intended to be general and advisory in nature. The Hartford is not providing investment advice, tax advice, legal advice, business advice, or other professional advice. The Hartford does not guarantee or warrant the accuracy, completeness, or timeliness of, or otherwise endorse, the information, views, opinions, and recommendations provided in these materials. You should always seek the assistance of a professional for advice on investments, tax, business, the law, or other professional matters.

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