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US growth decelerates to 1.4% in final quarter of 2025
The United States economy expanded at an annual rate of 1.4% between October and December, a marked slowdown from the 4.4% pace recorded in the previous quarter, according to official figures released Friday.
Key drivers behind the slowdown
Economists attributed the weaker performance to a combination of factors: cooling consumer spending, a steep drop in federal outlays, and a widening trade gap. Consumer expenditures rose 2.4%, down from 3.5% in the third quarter, while government spending plunged more than 16%.
The partial federal shutdown, which lasted through much of December, was singled out as a major drag. The Commerce Department estimated the disruption shaved one percentage point off fourth-quarter growth, though analysts believe the true impact was larger.
Annual performance beats expectations
Despite the fourth-quarter deceleration, the US economy grew 2.2% for the full year, outperforming forecasts that had anticipated a sharper slowdown amid trade tensions, tighter immigration rules, and persistent inflation.
"The core of the economy remains resilient," said Michael Pearce, chief US economist at Oxford Economics. "We expect growth to regain momentum in 2026."
Trade policy turbulence leaves mark
Volatile trade flows contributed to the economy's uneven trajectory. A surge in imports early in the year-driven by companies stockpiling goods ahead of expected tariffs-triggered a mild contraction in the first quarter. Growth rebounded in the spring and summer as imports eased, only to slow again late in the year when trade flows normalized.
Thursday's trade data, which revealed a widening deficit in December, prompted economists to revise their fourth-quarter growth estimates downward just hours before the official release.
Inflation uptick complicates Fed outlook
A separate report showed the Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, climbing to 2.9% in December from 2.8% the prior month. The rise could temper expectations for near-term interest rate cuts.
"This PCE report is a reality check," wrote Olu Sonola, head of US economics at Fitch Ratings. "The market may be pricing in multiple rate cuts this year, but the Fed's preferred measure is telling policymakers, 'not yet.'"
Political reactions and forward outlook
President Donald Trump sought to preempt criticism of the weak fourth-quarter figures, blaming the shutdown on Democrats and claiming it "cost the USA at least two points in GDP."
Private investment showed signs of life but remained concentrated in intellectual property and IT equipment. Analysts expect the government spending decline to reverse in early 2026 as federal operations return to normal.
