U.S. Economic Growth Slows to 1.4% in Fourth Quarter, Missing Forecasts
The U.S. economy grew less than anticipated in the final quarter of 2025, with inflation-adjusted gross domestic product increasing at an annualized rate of 1.4%, according to initial estimates released by the U.S. Bureau of Economic Analysis on Friday. This figure fell below all forecasts in a Bloomberg survey of economists and marked a significant slowdown from the 4.4% growth recorded in the prior period.
Impact of Government Shutdown and Trade Factors
The weak quarterly result was largely attributed to a record-long government shutdown that persisted for almost half of the three-month period. The Bureau of Economic Analysis indicated that the reduction in federal services during the shutdown subtracted approximately one percentage point from GDP, though the full impact remains difficult to quantify. Federal government spending, excluding defense, plummeted by 24.1% at the end of the year, the steepest decline since 2020.
Less than an hour before the data release, former President Donald Trump commented on social media, asserting that the shutdown would cost the U.S. "at least two points in GDP." Bloomberg Economics estimated the closure reduced economic activity by about $100 billion, with hundreds of thousands of workers going without pay and other benefit spending disrupted.
Annual Growth and Underlying Economic Trends
Despite the fourth-quarter slowdown, the U.S. economy expanded by 2.2% overall in 2025, capping a solid year that began with a contraction in the first quarter amid a pre-tariff surge in imports. The subsequent rebound was driven by Trump backing off from punitive levies and the Federal Reserve lowering interest rates, which helped propel the stock market to record highs and sustained spending among wealthier Americans.
Olu Sonola, head of U.S. economics at Fitch Ratings, noted in a statement: "Strip out the shutdown drag and growth looks closer to 2.5%, with the U.S. consumer still carrying the load and AI-linked investment doing real work. Zooming out to 2025, growth clearly cooled, but given the policy whiplash, coming in above two percent looks better than it had any right to."
Consumer Spending and Inflation Metrics
Underlying demand remained robust in the fourth quarter, with consumer spending slowing but staying solid. Investment in artificial intelligence data centers continued to set records in recent quarters. Separate monthly data released on Friday showed the Federal Reserve's preferred measure of underlying inflation, the core personal consumption expenditures price index, rose 0.4% in December, the largest increase in nearly a year. Annually, the core PCE climbed to 3%, up from 2.8% at the start of 2025.
Financial markets reacted to the report with the S&P 500 fluctuating at the open and Treasury yields falling. The data arrives amid a political backdrop where Trump, who reclaimed the White House in 2024, promised a "golden age" for the U.S., focusing on reviving manufacturing and lowering living costs. Factory activity has only recently begun to pick up after an extended slump, and inflation barely moved in 2025, keeping affordability a key issue for the upcoming midterm elections.
