The U.S. economy grew at an annualized rate of just 1.4 percent the fourth quarter of 2025, far below economists’ expectations, as a prolonged federal government shutdown and slowing consumer spending weighed on growth, the Commerce Department reported Friday. economy grew at an annualized rate of just 1.4 percent the fourth quarter of 2025, far below economists’ expectations, as a prolonged federal government shutdown and slowing consumer spending weighed on growth, the Commerce Department reported Friday.
The 1.4 percent rise marked a sharp slowdown from the 4.4 percent expansion recorded in the third quarter and fell well short of the Dow Jones estimate of 2.5 percent. Analysts said the shutdown, which lasted from October 1 to November 12, likely shaved about one percentage point off growth, though the exact impact could not be quantified.
“Consumer spending decelerated, government expenditure plunged, and exports pulled back,” the department said in a statement. Personal consumption expenditures (PCE), a measure of household spending, rose 2.4 percent, down from 3.5 percent in the previous quarter. Exports fell 0.9 percent after surging 9.6% in Q3.
Federal spending dropped sharply, with government outlays falling 16.6 percent at the federal level, partially offset by a 2.4 percent rise in state and local expenditures. Gross private domestic investment rose 3.8 percent, reflecting underlying strength in business capital outlays. Final sales to private domestic purchasers, a measure of demand excluding inventories and government, increased 2.4 percent, indicating resilient private-sector activity.
Despite the slowdown, inflation remained elevated. The core PCE price index, which excludes food and energy, rose 3 percentyear-on-year in December, keeping it above the Federal Reserve’s 2% target. On a monthly basis, goods prices climbed 0.4 percent, while services rose 0.3 percent, signaling broad-based price pressures. Headline PCE inflation accelerated 2.9 percent, slightly above forecasts.
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Economists said the slowdown was largely a temporary consequence of the shutdown. “The federal government shutdown clearly sent the economy careening off its strong growth path in the fourth quarter, which is a one-off that won’t be repeated in early 2026,” said Chris Rupkey, chief economist at Fwdbonds.
President Donald Trump, who had previously warned that GDP figures would be soft, attributed the slowdown to the shutdown and criticized Federal Reserve Chair Jerome Powell for not lowering interest rates more aggressively.
For the full year of 2025, the U.S. economy expanded 2.2 percent, down from 2.8% in 2024, demonstrating the effects of cyclical and policy headwinds. Analysts said early 2026 could see a rebound as government spending resumes and private-sector demand remains solid.
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“The government shutdown hurt growth at the end of 2025. The economy will likely bounce back in early 2026, but prolonged shutdowns are costly,” said Heather Long, chief economist at Navy Federal Credit Union. She noted that solid consumption and technological investment, particularly in artificial intelligence, continue to support the economy.
Investors and policymakers will be closely monitoring upcoming economic data, particularly inflation measures and consumer spending, to gauge the Federal Reserve’s next moves on monetary policy. Elevated price pressures suggest the central bank will remain cautious, balancing growth recovery with the goal of achieving long-term price stability.
The fourth-quarter data underscore the delicate interplay between fiscal policy, private-sector demand, and inflation dynamics in shaping U.S. economic performance.
