The latest economic data from the U.S. reveals a more pronounced slowdown in growth than initially anticipated for the fourth quarter, attributed to the lingering effects of the recent government shutdown and a decrease in consumer spending. According to the Bureau of Economic Analysis, the gross domestic product (GDP) rose at an annualized rate of 1.4% during this period. This figure starkly contrasts with the 3.0% growth projection made by economists surveyed by Reuters, who had not accounted for discrepancies linked to the widening trade deficit reported earlier.
The U.S. economy had shown robust performance in the third quarter, with a noteworthy growth rate of 4.4%. However, the Congressional Budget Office (CBO) has estimated that the government shutdown significantly contributed to this downturn by pulling down fourth-quarter GDP by 1.5 percentage points. The shutdown hindered federal services and spending, while also temporarily affecting essential benefits for low-income families. The CBO suggests that while most of the economic output lost will eventually recover, a portion estimated between $7 billion and $14 billion may not be regained.
In the wake of these reports, former President Donald Trump took to social media, asserting that the government shutdown detracted at least two percentage points from GDP growth and criticized ongoing governmental practices that may lead to similar scenarios. He called for an end to shutdowns and urged for lower interest rates to help stimulate the economy.
The recent GDP data also paints a troubling picture of the labor market, exhibiting what some describe as a “jobless economic expansion.” The economy’s growth trend signifies a diverging experience for Americans, leading to what is being characterized as a “K-shaped” economy. In this scenario, wealthier households continue to thrive, while lower-income demographics face increasing struggles exacerbated by inflation driven by import tariffs and stagnant wage growth. The situation is further compounded by a modest job market, with only 181,000 jobs added over the past year—the lowest figure outside the pandemic since the Great Recession in 2009.
Consumer spending, which had accelerated in the previous quarter at a vigorous 3.5% rate, has cooled as well. Economists attribute much of the spending to high-income households, often at the cost of savings, as inflation erodes purchasing power. However, expectations of larger tax refunds attributable to recent tax cuts may reignite consumer spending in the near future.
Interestingly, despite the sluggish growth in consumer expenditure, investment in artificial intelligence (AI) appears to have buoyed economic activity. Analysts estimate that contributions from AI-related sectors—such as datacenters, semiconductors, software, and R&D—accounted for approximately one-third of GDP growth in the first three quarters of 2025, helping to mitigate the impacts of tariffs and reduced immigration.
In terms of monetary policy, experts anticipate that this underwhelming economic report will likely have little effect on the Federal Reserve’s strategies moving forward, as broader trends still reflect ongoing investments in technology sectors.
