We are entering 2026 with the worst economy in years

If you are feeling down about the direction of the economy as the year comes to a close, you are not alone. There is also plenty of evidence to back up the sentiment.

Four-in-five Americans say that economic conditions are poor (47%) or fair (31%). Consumer sentiment is hovering at record lows, down 29% since the start of the year.

Coming into 2025, the economy was steadily improving. Between 2021 through 2024, the labor market gained 340,000 jobs per month. Inflation, which soared all around the world due to COVID-era supply chain disruptions, was finally coming down in the United States. In fact, during this period, the U.S. outpaced all other major industrialized countries both in reducing inflation and boosting economic growth.

That has all changed.

The U.S. is now experiencing its worst job market in years. The economy has added an average of just 17,000 jobs per month since April — a fraction of previous growth. Positions have been eliminated in three of the last seven months, including a loss of 105,000 jobs this past October.

Economists have dubbed this a “low-fire, low-hire” environment. While layoffs remain low, employers aren’t hiring like they once were, causing unemployment to rise to its highest level in four years and discouraging many people from continuing to look for work. The global trade war has stifled business activity. Manufacturing is down 67,000 jobs since April. And while the drop-off in immigration has reduced labor force growth, the increase in unemployment nationally has come almost entirely from native-born workers, who now have a higher unemployment rate than foreign-born workers.

Illinois’ $1.2 trillion economy has not been immune. Economic growth remains positive, but has slowed. Even though the number of unemployed people in Illinois has bucked the national trend and come down since January, Illinois’ labor force has shrunk. After years in which job openings were plentiful, there are now about as many positions available as there are unemployed workers.

Our current federal leadership is not helping the situation. The Illinois Economic Policy Institute and the University of Illinois recently found that federal cuts and freezes in 2025 have amounted to $8 billion in lost funding and other out-of-pocket costs annually for Illinois. These cuts to healthcare, education, infrastructure investments, and food aid will cost the state 86,000 jobs by 2029, mostly in the private sector.

Of course, it’s not just the job market that has Americans feeling gloomy. It is also inflation, which remains stubbornly high and has led to record credit card debt.

The federal government shutdown distorted the most recent official report — with 88% of goods and services incredulously assumed to have zero increase in prices in October — resulting in a lower inflation reading than most people’s real-world experience.

“True inflation” is about 3%, and much higher for certain items. For example, your ComEd bill probably increased by at least 10% — mine was much higher — as data centers have skyrocketed energy demand at the same time that the federal government decided to cut investments in new energy sources. These spikes will hurt retirees the most because Social Security cost-of-living adjustments will not keep pace.

The good news is that Illinois is better positioned to weather this new economic reality than it would have been just a half decade ago. The State has built a healthier “Rainy Day Fund,” earned 10 credit rating upgrades, enacted WorkShare IL to reduce layoffs, invested billions more per year toward education and infrastructure, and taken legal action to restore some of the job-killing federal cuts that targeted our private industries.

But the bad news is that the economy has clearly deteriorated.

Not one of our current national elected leaders campaigned on a promise of raising costs, killing jobs, and stifling economic growth. But that is precisely what has happened. Americans across the political spectrum are feeling the pain. Hopefully federal lawmakers will consider a New Year’s resolution to reverse course before it is too late.

• Frank Manzo is an economist at the nonpartisan Illinois Economic Policy Institute.