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U.S. Q4 2025 GDP Slows to 1.4% as Shutdown Cuts Growth

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  • US economic growth weaker than thought in fourth quarter with government shutdown, consumer pullback
    US economic growth weaker than thought in fourth quarter with government shutdown, consumer pullback
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    US economic growth weaker than thought in fourth quarter with government shutdown, consumer pullback (Credit: via ap) Source Full size
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    Image: BBC
    AFP via Getty Images Source Full size
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    Image: BBC
    AFP via Getty Images Source Full size

Quarterly Growth Rate Drops Sharply The Commerce Department’s advance estimate shows the economy expanded at an annualized 1.4% rate in the fourth quarter of 2025, a steep decline from the 4.4% pace recorded in July‑September [1][2]. This slowdown marks the sharpest quarterly deceleration since the pandemic’s early years. Analysts attribute the drop primarily to fiscal and external pressures rather than a collapse in consumer demand. The revised figure still leaves annual growth at 2.2% for 2025, modestly above many forecasts [2].

Federal Shutdown Removes About One Growth Point six‑week federal shutdown reduced government outlays by roughly 16‑17%, directly shaving one percentage point from quarterly GDP [1][2]. The contraction in federal spending was the largest quarterly fiscal pullback since 2009. Economists note that without the shutdown, Q4 growth would have been near 2.4%, aligning more closely with prior quarters. The shutdown’s impact underscores the economy’s sensitivity to government fiscal activity.

Consumer Spending Remains Positive but Slows Household expenditures rose 2.4% in Q4, down from a 3.5% increase earlier in the year, indicating a cooling of consumer momentum [1][2]. The personal saving rate fell to 3.6%, the second‑lowest level since 2008, suggesting tighter household finances and greater reliance on debt [1]. Meanwhile, the personal consumption expenditures price index rose to 2.9% in December, up from 2.8% in November, adding pressure on the Federal Reserve’s rate outlook [2]. Despite the slowdown, consumer spending continued to support overall economic activity.

Investment Concentrates on AI and IT While Jobs Lag Business investment was modest, with AI‑related equipment and data‑center hardware accounting for most of the gain [1]. Private capital spending also favored intellectual‑property assets and information‑technology hardware, reflecting sector‑specific confidence [2]. Job creation remained weak, with fewer than 200,000 positions added in 2025 and the unemployment rate edging up to 4.3% [1]. The combination of targeted tech investment and sluggish labor market highlights a “one‑legged” recovery driven by advanced‑technology projects.

Sources

Timeline

Q3 2023 – The U.S. economy previously posts a 4.4% annualized growth rate, a benchmark later matched only by the revised Q3 2025 figure[5].

Q3 2025 (July‑September 2025) – GDP expands 4.3% annualized, the strongest in two years, driven by a 3.5% surge in consumer spending, a 7.4% rebound in exports, and defense‑related federal outlays; business investment slows, housing cools, and the PCE inflation gauge rises to 2.8%[2][2].

Dec 2025 – President Trump credits his tariffs for the Q3 growth, while a pending Supreme Court case could overturn many of those tariffs and force refunds to importers[3].

Dec 2025 – The Conference Board reports consumer confidence falling to 89.1 (its lowest since April) and the unemployment rate climbing to a four‑year high, underscoring a K‑shaped recovery where wealthier households drive growth[3].

Dec 22‑23 2025 – AAA notes national average gas prices dip below $3 per gallon, hovering at $2.85‑$2.86, even as overall sentiment remains muted despite the strong Q3 GDP figure[4].

Jan 2026 – The Commerce Department revises Q3 GDP to a 4.4% annualized pace, the fastest since Q3 2023, confirming consumer spending’s 3.5% contribution (about 70% of GDP) and a trade surplus from higher exports and lower imports[5].

Feb 2026 – Q4 2025 GDP slows sharply to a 1.4% annualized rate, a drop from the prior 4.4% quarter, as a six‑week federal shutdown cuts government outlays by nearly 17% and removes roughly one growth point[6].

Feb 2026 – Household spending rises 2.4% while the personal saving rate falls to 3.6%, the lowest since 2008, indicating tighter finances amid rising debt reliance[6].

Feb 2026 – Business investment remains modest, with AI‑related equipment and data‑center projects providing most of the gain, highlighting a “one‑legged” economy centered on artificial‑intelligence projects[6].

Feb 2026 – Job creation lags, with fewer than 200,000 jobs added in 2025 and unemployment edging to 4.3%, the smallest annual hiring surge since the pandemic’s start[6].

Feb 2026 – The PCE price index accelerates to 2.9% in December, dampening expectations of near‑term Federal Reserve rate cuts and suggesting rates will stay steady[1].

Feb 2026 – Private capital spending stays focused on intellectual‑property assets and information‑technology hardware, indicating sector‑specific confidence despite the broader slowdown[1].

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