U.S. economy slows to 1.4% GDP growth in Q4
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The U.S. economy grew at only a moderate pace in the final months of 2025, as GDP rose at a 1.4% annual rate amid a steep pullback in federal spending.
Why it matters: Growth decelerated at the end of the year in the broadest measure of economic activity, as job creation slowed sharply. But two recent drivers of growth — consumer spending and business investment — remained robust.
Driving the news: Economic output was 2.2% higher in Q4 than a year earlier, just below the 2.4% growth seen in 2024.
- A separate release of December consumer spending and inflation data favored by the Federal Reserve showed consumer prices up 0.4% in December, compared with 0.2% in November.
- Personal income rose 0.3% in December.
State of play: Personal consumption expenditures drove the fourth-quarter surge, contributing 1.6 percentage points to overall growth.
- The AI boom continued apace, with investment in information processing equipment contributing 0.65 percentage points to growth and software investment another 0.17 points.
- However, there was a significant drag on GDP from federal government expenditures, which fell at a 16.6% rate and subtracted 1.15 percentage points from overall growth.
- The government was shut down in October through mid-November, encompassing about half of the fourth quarter.
What they're saying: At 7:50 a.m., 40 minutes before the GDP release, President Trump said on Truth Social that "The Democrat 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. 'Two Late' Powell is the WORST!!!"
Of note: Real final sales to private domestic purchasers, a measure of underlying trend growth, rose at a 2.4% annual rate, pointing to consistent overall demand in the economy.
