U.S. Economy Stumbles with 0.7% Q4 Growth After Government Shutdown
The U.S. economy, hobbled by last fall's 43-day government shutdown, advanced at an unexpectedly sluggish 0.7% annual rate from October through December, the Commerce Department reported Friday in a significant downgrade of its initial estimate.
Sharp Decline in Economic Momentum
Growth in gross domestic product—the nation's comprehensive output of goods and services—was down sharply from 4.4% in last year's third quarter and 3.8% in the second quarter. The fourth-quarter figure represented just half of the government's first estimate of 1.4%, defying economists' expectations that revisions would show stronger growth.
Federal government spending and investment, severely impacted by the shutdown, plunged at a dramatic 16.7% rate, slicing 1.16 percentage points directly off fourth-quarter growth.
Annual Performance and Sector Analysis
For the entirety of 2025, GDP grew 2.1%, a solid performance but down from an initial estimate of 2.2% and notably lower than the 2.8% growth recorded in 2024 and 2.9% in 2023.
In the fourth quarter specifically, consumer spending grew at a modest 2% clip, down from 3.5% in the third quarter and below the government's initial estimate of 2.4%. Business investment, excluding housing, increased at a healthy 2.2% pace, likely reflecting substantial capital being poured into artificial intelligence technologies. However, this increase was still down from 3.2% in the third quarter and significantly lower than the 3.7% advance in the Commerce Department's initial estimate.
Exports fell at a 3.3% annual rate in the fourth quarter, representing a larger drop than the government first estimated.
Underlying Economic Strength Weakens
A critical category within the GDP data that measures the economy's underlying fundamental strength came in weaker than previously reported, growing at just 1.9%, down from 2.9% in the third quarter and the first estimate of 2.4%. This category includes consumer spending and private investment but excludes volatile items like exports, inventories, and government spending.
"Following two consecutive strong readings for the second and third quarters, the economy was expected to soften heading into year-end. It's now increasingly clear that the economy not only slowed but stumbled into the finish line," stated Jim Baird, chief investment officer at Plante Moran Financial Advisors, in a commentary. "The government shutdown was certainly a major factor in the loss of momentum, but a sharp decline in consumption growth also played a significant role."
Broader Economic Context and Challenges
The U.S. economy—the world's largest—has demonstrated surprising resilience in the face of President Donald Trump's policies, including sweeping import taxes and mass deportations. However, the ongoing war with Iran has driven up oil and gas prices substantially, clouding the economic outlook for the coming months.
Meanwhile, the American job market is experiencing a pronounced slump. Last month, companies, nonprofits, and government agencies collectively cut 92,000 jobs. Throughout 2025, they added fewer than 10,000 jobs per month on average, marking the weakest hiring performance outside of recession years since 2002.
Friday's GDP report represents the second of three estimates for fourth-quarter growth. The final, comprehensive report is scheduled for release on April 9, providing further clarity on the nation's economic trajectory.
