Q4 2025 Main Street Report

The U.S. economy continued to expand in Q4 2025, though the pace of growth slowed and underlying indicators presented increasingly mixed signals. Real GDP rose at a 1.4% annualized rate, reflecting continued expansion but marking a deceleration from earlier in the year. In January 2026[GS1.1][SM1.2], inflation moderated to 2.4% year-over-year, providing relief to businesses and consumers alike. Meanwhile, the unemployment rate remained relatively low at 4.3%, underscoring ongoing labor market resilience.

However, beneath these stable headline indicators, signs of cooling emerged. Consumer spending and retail sales slowed during the quarter, suggesting households are becoming more selective amid elevated borrowing costs and slower wage growth. While consumer sentiment edged slightly higher in December, spending momentum weakened. Wage growth continued to moderate, and labor market churn declined, with lower quits and softer hiring activity signaling a gradual normalization rather than contraction.

According to the Experian Small Business Index™, business credit conditions remained within the typical 40-60 range. Lending availability showed slight tightening during the fourth quarter, while APRs remained elevated but stable. Entrepreneurial momentum remained strong. New business formations averaged approximately 509,000 per month, with acceleration most pronounced in the South and West.

Despite these pressures, optimism improved modestly among both consumers and small business owners. The NFIB Small Business Optimism Index and University of Michigan Consumer Sentiment Index both recorded gains in December, suggesting confidence has stabilized even as economic momentum slows. As 2025 closesclosed, small businesses remained fundamentally stable but increasingly cautious, navigating a higher-cost credit environment and moderating demand.