Fourth-quarter U.S. GDP up just 1.4%, badly missing estimate; inflation firms at 3%
U.S. Economy Sees Slower Growth at End of 2025
The latest data released by the Commerce Department shows that the U.S. economy experienced a slowdown in growth near the end of 2025, falling short of expectations. Gross domestic product (GDP) rose at an annualized rate of just 1.4%, well below the forecasted 2.5% gain. This deceleration was attributed to the impact of the government shutdown on spending and investment.
Consumer spending increased at a slower pace during the period, while government spending took a sharp downturn due to the record-length shutdown. The Commerce Department estimated that the shutdown subtracted about 1 percentage point from growth, although the exact impacts could not be quantified. For the full year in 2025, the U.S. economy grew at a 2.2% pace, down from the 2.8% increase in 2024.
Chief economist at Fwdbonds, Chris Rupkey, noted that the government shutdown was a one-off event that disrupted the economy’s strong growth path in the fourth quarter, but he expects a rebound in early 2026. President Donald Trump also commented on the GDP numbers, attributing the soft growth to the shutdown and calling for lower interest rates.
Inflation Remains a Factor for the Economy
Despite the slowdown in growth, inflation remained a concern in December. The core personal consumption expenditures price index, which excludes food and energy, rose by 3%, exceeding the Federal Reserve’s 2% target. The headline PCE index also accelerated by 2.9%, indicating ongoing price pressures in the economy.
Goods prices increased by 0.4% while services saw a 0.3% rise, suggesting that inflationary pressures were broad-based. The Fed had previously cut its benchmark rate in late 2025 but has since adopted a more cautious approach to monitor inflation and labor market risks.
Positive Signs Amidst the Slowdown
While the headline GDP number appeared weak, underlying indicators of demand remained strong. Final sales to private domestic purchasers increased by 2.4% for the quarter, pointing to solid underlying demand in the U.S. economy. Gross private domestic investment also saw a 3.8% rise after a flat performance in the previous quarter.
On the flip side, government spending and investment declined by 5.1%, primarily due to a significant drop at the federal level. However, state and local entities managed to partially offset this decline with a 2.4% increase.
Overall, the U.S. economy showed resilience in 2025 despite various challenges. The Commerce Department highlighted a pullback in consumer spending and exports, as well as the impact of the government shutdown, as factors contributing to the slowdown. Economists anticipate a rebound in early 2026, driven by solid consumption and the growth of artificial intelligence technologies.
