The U.S. economy slowed sharply in the fourth quarter of 2025, growing at an annualized rate of just 1.4%, according to the latest data from the Commerce Department’s Bureau of Economic Analysis. This figure came in well below economists’ expectations, which had predicted growth around 2.5% to 3%. The slowdown marked a steep drop from the strong 4.4% pace seen in the third quarter.
A major factor behind the weak performance was a record-long federal government shutdown that lasted 43 days, from October 1 to November 12, 2025. The shutdown led to furloughs for many federal workers, reduced government services, and sharp cuts in federal spending. The Bureau of Economic Analysis estimated that this disruption subtracted about 1 percentage point from GDP growth in the quarter. While the exact effects are hard to measure fully, economists widely agree that the impact was temporary. Furloughed workers received back pay, and much of the lost activity is expected to rebound in early 2026.
“The government shutdown hurt growth at the end of 2025,” said Heather Long, chief economist at Navy Federal Credit Union. “The economy will likely bounce back in early 2026, but it isn’t harmless to do prolonged shutdowns.”
President Donald Trump blamed the slowdown on what he called a “Democrat Shutdown,” claiming in a Truth Social post before the data release that it cost the U.S. “at least two points in GDP.” He also renewed calls for lower interest rates and criticized Federal Reserve Chair Jerome Powell.
Other elements contributed to the slower growth as well. Consumer spending, a key driver of the economy, rose at a 2.4% pace in the fourth quarter, down from 3.5% in the prior period. Exports declined by 0.9%, and government spending overall fell 5.1%, with federal outlays dropping even more sharply at 16.6%.
Despite the headline weakness, some underlying parts of the economy showed resilience. A measure of private demand called final sales to private domestic purchasers grew 2.4%, signaling solid consumer and business activity. Gross private domestic investment rose 3.8%, supported in part by business spending on equipment and intellectual property, including areas tied to the AI boom.
For the full year of 2025, the U.S. economy expanded at a 2.2% pace, down from 2.8% in 2024. Economists note that the economy remained resilient overall, with strong consumption and investment in technology helping offset various headwinds.
At the same time, inflation remained sticky. The Federal Reserve’s preferred gauge, the core personal consumption expenditures (PCE) price index—which excludes food and energy—rose 3% year-over-year in December 2025, up from 2.8% in November and above the Fed’s 2% target. The headline PCE index, which includes all items, climbed 2.9% annually and 0.4% monthly, both slightly hotter than expected. Price pressures appeared broad-based, with goods and services both showing increases.
The Fed cut its benchmark interest rate by three-quarters of a percentage point in late 2025 but has since taken a cautious stance, watching inflation trends alongside labor market risks.
Overall, the fourth-quarter slowdown appears largely tied to the one-time government shutdown rather than deeper structural problems. Many analysts expect growth to pick up again in 2026, supported by recovering government activity and ongoing private-sector strength.
