The U.S. economy has faced a significant slowdown, according to a report from the Commerce Department highlighting a mere 0.7% annual growth rate in the fourth quarter of 2025, sharply down from earlier projections. This figure represents a notable decline from both the third quarter’s growth rate of 4.4% and the second quarter’s 3.8%. The revision marks a downgrade from an initial estimate of 1.4%, leaving economists surprised as many had anticipated a stronger performance.
A major contributing factor to this slowdown was the 43-day government shutdown that occurred last fall. Federal government spending and investment plummeted by 16.7%, subtracting an astonishing 1.16 percentage points from overall growth. For the entirety of 2025, GDP growth stood at 2.1%, slightly less than the earlier estimate of 2.2% and lower than the growth rates of 2.8% in 2024 and 2.9% in 2023.
Consumer spending also took a hit, growing just 2% during the fourth quarter, a decrease from the previous quarter’s growth of 3.5%. This was also lower than the initial estimate of 2.4%. Despite this decline, business investment, particularly in sectors excluding housing, displayed some resilience with a 2.2% increase, though that too was down from both the third quarter’s 3.2% growth and the initial estimate of 3.7%.
Exports were another area of concern, showing a decline at a 3.3% annual rate—worse than previous estimates and indicative of a broader trend that could have further implications for the economy.
In terms of the economy’s underlying strength, a key category that excludes volatile elements such as exports and government spending showed growth of only 1.9%. This is a stark drop from the 2.9% growth observed in the third quarter and the initial estimate of 2.4% for the fourth quarter. Jim Baird, Chief Investment Officer at Plante Moran Financial Advisors, noted the shift, explaining that while some deceleration was expected, the extent of the slowdown had been underestimated. He attributed the drastic decline not only to the effects of the government shutdown but also to a marked reduction in consumption growth.
Overall, the largest economy in the world is experiencing pressure from a variety of factors, including President Trump’s policies like import tariffs and immigration restrictions. Additionally, rising oil and gas prices amid geopolitical tensions, particularly the ongoing conflict with Iran, are adding complexity to the economic landscape.
The labor market has also shown signs of stress, as recent reports indicated a loss of 92,000 jobs across industries, with job additions in 2025 averaging below 10,000 per month. This marks the weakest hiring rate outside of recession years dating back to 2002.
This recent GDP report is the second of three estimates for fourth-quarter growth, with the final report scheduled for release on April 9. The data paints a concerning picture of the U.S. economy as it enters a new year, raising questions about future growth trajectories and the potential impacts on everyday Americans.
