Fourth-quarter GDP revised down to just 0.7% growth; January core inflation was 3.1%
The latest report from the Commerce Department reveals that economic growth in the final quarter of 2025 fell short of expectations, with gross domestic product (GDP) only growing at a rate of 0.7%. This was a significant downward revision from the previous estimate of 1.4% and well below the consensus forecast of 1.5%. The slowdown was largely attributed to a record-long government shutdown that led to a 16.7% drop in government spending.
For the full year, GDP increased by 2.1%, slightly lower than the previous reading and a decline from the 2.8% growth seen in 2024. The revision was primarily due to adjustments in consumer and government spending, as well as exports. Consumer spending rose by 2% in the fourth quarter, with the largest contribution to the downward revision coming from services, particularly health care spending.
On the inflation front, the personal consumption expenditures price index rose by 0.3% in January, bringing the annual rate to 2.8%. Core PCE inflation, which excludes volatile food and energy costs, increased by 0.4% in January and 3.1% on a 12-month basis. These readings indicate that price increases are running above the Federal Reserve’s target.
A separate report from the Commerce Department showed that orders for long-lasting goods were flat in January, falling short of estimates for a 1.3% gain. This data, combined with the downward revision in GDP, suggests that the economy may be facing challenges amidst the current energy crisis. The recent conflict between the U.S. and Iran has led to a surge in energy prices, with Brent crude reaching $100 a barrel.
Looking ahead, economists anticipate that the Federal Reserve may hold off on rate cuts and could even start discussing rate hikes later this year, given the inflationary pressures and economic challenges. The central bank is set to announce its next rate decision soon, with markets predicting a high likelihood that rates will remain unchanged.
In conclusion, the latest economic data paints a mixed picture of the U.S. economy, with slower growth and higher inflation posing challenges for policymakers and investors alike. Stay tuned for further updates on how these developments may impact the broader economic landscape.
