US Economic Growth Decelerates Sharply in Fourth Quarter of 2025
The United States economy experienced a significant slowdown in the final quarter of 2025, with gross domestic product (GDP) expanding at a much weaker pace than anticipated. According to the advance estimate released by the Commerce Department's Bureau of Economic Analysis on Friday, GDP increased at an annualized rate of 1.4% in the fourth quarter. This figure fell substantially short of the 3.0% growth forecast by economists polled by Reuters, highlighting unexpected economic headwinds.
Government Shutdown and Consumer Spending Moderation Drive Slowdown
The slowdown was primarily attributed to disruptions caused by the record 43-day government shutdown in 2025, which had a measurable impact on economic activity. The nonpartisan Congressional Budget Office (CBO) estimated that the shutdown subtracted approximately 1.5 percentage points from fourth-quarter GDP. This reduction stemmed from fewer services provided by federal workers, lower federal spending on goods and services, and temporary cuts to Supplemental Nutrition Assistance Program benefits. While the CBO projected that most of the lost output would eventually be recovered, it noted that between $7 billion and $14 billion would be permanently lost.
Additionally, growth in consumer spending moderated from the third quarter's brisk 3.5% pace. Economists pointed out that spending has largely been driven by higher-income households, with lower-income consumers struggling amid high inflation from import tariffs and stalling wage growth. This has created what some term an "affordability crisis," exacerbating economic disparities.
Job Market Weakness and Economic Disparities
The report also underscored a jobless economic expansion, with only 181,000 jobs added in 2025—the fewest outside the pandemic since the 2009 Great Recession and down sharply from 1.459 million in 2024. This contributed to a "K-shaped" economy, where upper-income households fare well while lower-income ones face challenges. Inflation has eroded buying power, leading consumers to dip into savings to maintain spending levels.
Potential Boosters: Tax Cuts and AI Investment
Despite the fourth-quarter slowdown, there are positive factors that could support economic activity in 2025. Economists anticipate that tax cuts implemented recently may lead to larger tax refunds this year, providing a tailwind for consumer spending. Moreover, investment in artificial intelligence (AI) is expected to play a crucial role in boosting growth. In the first three quarters of 2025, AI—including datacenters, semiconductors, software, and research and development—accounted for about one-third of GDP growth, helping to offset the negative effects of tariffs and reduced immigration.
Political Reactions and Policy Implications
Former President Donald Trump commented on the situation via social media, stating, "Shutdown cost the U.S.A. at least two points in GDP. That's why they are doing it, in mini form, again. No Shutdowns! Also, LOWER INTEREST RATES." However, economists believe this stale report will likely have no immediate impact on monetary policy, as it reflects past conditions rather than current trends.
In summary, while the US economy faced a notable deceleration in late 2025 due to government shutdown disruptions and weakened consumer spending, prospects for 2025 remain cautiously optimistic, supported by tax cuts and robust AI investment.
