New government data shows the U.S. economy was weaker at the end of last year than previously believed, raising fresh concerns as geopolitical tensions and inflation continue to pressure the outlook.
The Commerce Department said Friday that U.S. gross domestic product (GDP)—the total value of goods and services produced across the economy—grew at an annual rate of just 0.7% in the fourth quarter of 2025. That figure was sharply revised down from the 1.4% growth rate reported in the government’s earlier estimate and far below the 4.4% expansion recorded in the third quarter.
The downgrade reflects weaker-than-expected activity across several parts of the economy. Consumer spending, business investment, exports, and government spending all came in lower than initially reported.
One of the biggest drags on growth was the federal government shutdown last fall. Economists estimate the shutdown alone shaved about 1.16 percentage points off GDP, largely due to disruptions such as missed paychecks for federal workers and paused government operations. However, many analysts expect some of that lost economic activity to be recovered in the first quarter of 2026.
Exports were another major factor behind the downward revision. Instead of a modest decline as initially reported, exports dropped 3.3%, putting additional pressure on the economy.
Despite the weak headline number, some measures suggested underlying demand was stronger. A key gauge economists use called final sales to private domestic purchasers—which tracks consumer spending and private investment—grew at a 1.9% annual rate, though that was still revised down from the previously estimated 2.4%.
Consumer spending, which accounts for roughly two-thirds of U.S. economic activity, also slowed slightly. Adjusted for inflation, spending increased 2% in the fourth quarter, lower than the earlier estimate of 2.4%.
At the same time, inflation remains a concern. The Federal Reserve’s preferred measure, the personal consumption expenditures (PCE) price index, rose 2.8% year over year in January, only slightly down from 2.9% in December. On a monthly basis, prices increased 0.3%, showing that inflation is still running above the Fed’s target.
A separate report showed consumer spending rose 0.4% in January, slightly higher than economists expected. While that suggests households are still spending, analysts warn that rising energy prices could weigh on consumers in the coming months.
The latest economic figures come just before the growing conflict with Iran began disrupting global oil markets. Analysts say the war could push energy prices higher and create additional inflation pressures, potentially slowing the economy even further.
Meanwhile, the labor market is showing mixed signals. Employers cut 92,000 jobs in February, pushing the unemployment rate up slightly to 4.4%. However, job openings increased by about 400,000 in January, suggesting some companies are still looking to hire.
The combination of slow economic growth, persistent inflation, and geopolitical uncertainty is putting the Federal Reserve in a difficult position. While the central bank lowered interest rates three times last year to support the labor market, policymakers may hesitate to cut rates again if rising oil prices push inflation higher.
Overall, the revised data suggests the U.S. economy entered 2026 on shakier footing than previously thought, even before the potential economic shock from rising energy costs and global instability.
