U.S. Economic growth slowed sharply to a 1.4% annualized rate in the fourth quarter of 2025, the Bureau of Economic Analysis reported Friday, falling well below economists’ expectations of 3.0% growth. The deceleration marks a significant shift from the 4.4% pace recorded in the third quarter, and reflects disruptions stemming from last year’s government shutdown and a moderation in consumer spending.
The advance estimate of fourth-quarter GDP, released by the Commerce Department, revealed a complex economic picture. While consumer spending and investment provided some lift, these gains were partially offset by declines in government spending and exports. Imports too decreased during the period.
The 43-day government shutdown, the longest in U.S. History, is estimated to have subtracted 1.5 percentage points from the fourth quarter’s GDP, according to the non-partisan Congressional Budget Office (CBO). The CBO anticipates that most of the lost output will eventually be recovered, but projects between $7 billion and $14 billion will be permanently lost to the economy.
Prior to the report’s release, former President Donald Trump posted on social media, attributing the slowdown to the shutdown and calling for lower interest rates. “Shutdown cost the U.S.A. At least two points in GDP. That’s why they are doing it, in mini form, again. No Shutdowns! Also, LOWER INTEREST RATES,” he wrote.
The report underscored a widening disparity within the economy, often described as “K-shaped,” where upper-income households continue to thrive while lower-income consumers struggle with persistent inflation and stagnant wages. The conditions have fueled what economists and political opponents characterize as an affordability crisis.
Job creation slowed considerably in 2025, with only 181,000 jobs added throughout the year – the fewest outside of the pandemic since the 2009 Great Recession, and a substantial decrease from the 1.459 million jobs added in 2024. Growth in consumer spending also decelerated, falling from a 3.5% pace in the third quarter.
Economists suggest that consumer spending has been largely driven by higher-income households, who have been drawing down savings as inflation erodes purchasing power. However, larger tax refunds anticipated this year, due to recent tax cuts, could provide a boost to consumer spending in the coming months.
Investment in artificial intelligence (AI) has emerged as a significant driver of economic growth. Economists estimate that AI-related sectors, including datacenters, semiconductors, software, and research and development, accounted for approximately one-third of GDP growth in the first three quarters of 2025, helping to offset the negative impacts of tariffs and reduced immigration.
The Bureau of Economic Analysis is scheduled to release its next estimate for fourth-quarter GDP on March 13, 2026. The Federal Reserve has indicated that the stale report will likely have no immediate impact on monetary policy.
