Wow on wow!
In late December, the Bureau of Economic Analysis (BEA) released their preliminary third quarter report on real GDP growth (the Q3 report was delayed by two months due to the government shutdown). According to the report, the U.S. economy grew by a whopping 4.3% during the third quarter, which is on the heels of a reported 3.8% annualized growth rate in the second quarter. Wow! Now that’s impressive.
The growth was driven primarily by a large increase in Personal Consumption Expenditures, which contributed 2.4% of the 4.3% growth rate. Next in line, Net Exports contributed 1.6% of the growth. Rather surprisingly, Private Domestic Investment came in at a negative number.1
One possible takeaway (remember this is a preliminary report and subject to revision) is that commonly cited measures of aggregate hours worked in the private sector appear to have grown only modestly over the past two quarters. Taken together with the strength in output, this suggests that productivity likely improved over this period, although the exact magnitude is not yet clear.
I’ve been expecting a productivity-led increase to push GDP growth rates up, but I’m surprised that the productivity rate has ramped upward so quickly. Wow on wow!
Big uptick in productivity?
Worker productivity, the “mother’s milk” of rising societal wealth creation, is increasing nicely, exceeding an average 1.5% yearly growth rate over the last five years.2 This all suggests that employers have the capability of increasing workers’ wages by at least 1.5% per quarter over the last five years without impacting profit margins. Worker productivity currently appears to be accelerating from that five-year average.
If we look at the second and third quarter data for this year we see that GDP growth has averaged a strong 4.1% growth rate, bringing the year-to-date to 2.5% so far in 2025.3 As of Dec. 23, 2025, the Atlanta Fed “GDP Now” forecast is 3.0% for the fourth quarter, while the “Blue Chip” economist’s consensus forecast is currently at 0.9% for the same quarter.4
The average of those two forecasts would be 2.0% for the fourth quarter. If this plays out, 2025 GDP growth looks like it may run in the low 2% range for the entire year, a little stronger than my “Three Yards and a Cloud of Dust” theme has been suggesting this year.
Déjà vu all over again
My core economic outlook for 2026 is entitled “Déjà vu”—that growth and inflation will seem familiar to more experienced businesspeople, as it may remind them of the economic environment we normally saw prior to the year 2000. Prior to 2000 was a period when both GDP growth and inflation (core PCE) averaged above 3.0%.
If my outlook plays out, younger workers may find economic growth impressive at 3%+. I can’t blame them, as “real” annual GDP growth has been above 3% only once since 2005, which occurred in the rebound year of 2021. Besides the COVID rebound year, economic growth hasn’t exceeded 3% in any of the last 20 years!
Historical average annual GDP growth and PCE (core) inflation data is below:
| Years | Real GDP Growth | Core PCE Inflation |
| 1980-1999 | 3.2% | 3.8% |
| 2000-2024 | 2.2% | 2.1% |
Data Sourced from the Bureau of Economic Analysis Interactive Data tool
Of note is the acceleration we’ve seen in GDP growth during the second and third quarters of the current year. As stated earlier in my 2026 outlook piece, I believe both GDP growth and core PCE rates in 2026 may be closer to 3% than 2%, resembling economic performance which was common prior to the turn of the millennium.
To give you some perspective on this issue, the U.S. economy has grown more than 3% during 24 of the last 55 years (1970 – 2024). But 21 of those 24 years of greater than 3% growth occurred between 1970 and 2000, for a 3% growth rate “batting average” of .677 prior to the millennium. That leaves three years when growth exceeded 3% out of the last 24 years for a “batting average” of .125 over the last 24 years. GDP growth rates of 3% have recently been rare, indeed!5
Fundamental factors leading to 3% growth
As a reminder of why I believe we will see roughly 3% GDP growth in 2026, my view is that we’ll continue to have relatively “weak” employment environment, so I’m not expecting job creation alone to be the primary driver of economic growth.
Since the start of 2025, private-sector payrolls have increased at an average pace of roughly 69,000 jobs per month. I focus on private payrolls to exclude the one-time impact of an estimated 105,000 government jobs lost due to DOGE-related layoffs.
An average pace of 69,000 jobs per month translates into labor input growth of roughly 0.5% per year.6 While modest, this still provides a positive contribution to economic growth. I also expect labor productivity growth to continue to improve, running above 2% as discussed above. Taken together, labor input growth of about 0.5% combined with productivity growth in the 2.0% to 2.5% range is consistent with real GDP growth of approximately 2.5% to 3.0% in 2026.
If we throw in the stimulus of two items included in the One Big Beautiful Act (OBBBA) legislation passed earlier this year, we should see capital spending rise nicely in 2026 (100% first-year depreciation rates) and a jump in consumer spending driven by larger deductions and an increase in non-taxable income, which should translate to average refunds of about $1,000 per taxpayer in 2026.
I estimate the total impact of those two items could add $222 billion in spending power to economic activity, or an upward push of 0.7% from 2025’s GDP, which seems to be coming in a little above 2%.
Stock market in a 3% world
Some may ask about earnings growth rates and historical stock market performance during these periods when the economy grew more than 3%. Now, I’m not calling for GDP growth to strongly exceed a 3% growth rate, but I am suggesting we may approach that rate in 2026.
If we once again go back 55 years, we see the economy grew more than 3% in 24 of those 55 years. Corporate profits grew on average 12% over those strong growth periods (well above the average over the entire time frame), while S&P 500 price returns averaged 11% during those years (slightly above average).7
Interestingly, over these periods, market returns ran pretty much in-line with earnings growth, suggesting when the economy had grown more than 3%, the main driver in stock prices wasn’t P/E expansion, but rather earnings growth.
I’m stepping out of my economic “batter’s box” to make comments about the capital markets, but I wouldn’t be surprised that the main driver for stock market gains in 2026 proves not to be Fed rate reductions, as it seems many are currently believing, but earnings growth.
Sources:
- Bureau of Economic Analysis, Gross Domestic Product, 3rd Quarter 2025 (Initial Estimate) and Corporate Profits (Preliminary) | U.S. Bureau of Economic Analysis (BEA)
- Bureau of Labor Statistics, Table 1. Business sector: Labor productivity, hourly compensation, unit labor costs, and prices, seasonally adjusted – 2025 Q02 Results
- Bureau of Economic Analysis, gdp3q25-ini.pdf
- Federal Reserve Bank of Atlanta, GDPNow – Federal Reserve Bank of Atlanta
- Data sourced from Bureau of Economic Analysis Interactive Data Tool, BEA Interactive Data Application
- Bureau of Labor Statistics, http://data.bls.gov/dataViewer/view/timeseries/CES0500000001
- Data sourced from FactSet. Corporate Profits are from the Bureau of Economic Analysis National Income Report.
This commentary is provided for informational and educational purposes only. As such, the information contained herein is not intended and should not be construed as individualized advice or recommendation of any kind.
The opinions and forward-looking statements expressed herein are not guarantees of any future performance and actual results or developments may differ materially from those projected. The information provided herein is believed to be reliable, but we do not guarantee accuracy, timeliness, or completeness. It is provided “as is” without any express or implied warranties.
The S&P 500 Index is an unmanaged, market capitalization–weighted index of large-cap U.S. stocks. Index returns are shown for illustrative purposes only and do not reflect fees, expenses, or taxes. Investors cannot invest directly in an index. Economic growth, corporate profits, and market returns vary significantly over time, and there is no guarantee that historical relationships will persist.
There is no assurance that any investment, plan, or strategy will be successful. Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results, and nothing herein should be interpreted as an indication of future performance. Please consult your financial professional before making any investment or financial decisions.
Mariner is the marketing name for the financial services businesses of Mariner Wealth Advisors, LLC and its subsidiaries. Investment advisory services are provided through the brands Mariner Wealth, Mariner Independent, Mariner Institutional, Mariner Ultra, and Mariner Workplace, each of which is a business name of the registered investment advisory entities of Mariner. For additional information about each of the registered investment advisory entities of Mariner, including fees and services, please contact Mariner or refer to each entity’s Form ADV Part 2A, which is available on the Investment Adviser Public Disclosure website. Registration of an investment adviser does not imply a certain level of skill or training.