The U.S. economy cooled significantly at the end of 2025, expanding at an annualized rate of just 1.4% in the fourth quarter. This marks a sharp deceleration from the robust 4.4% growth recorded in the third quarter, according to the advance estimate released by the Bureau of Economic Analysis (BEA).
The delayed data release—rescheduled from late January to February due to the October–November 2025 federal government shutdown—highlights a quarter of contrasting economic forces.
The Shutdown Drag vs. Consumer Resilience The primary catalyst for the Q4 slowdown was a severe contraction in public sector spending. The historic government shutdown triggered a 17% plunge in federal outlays, ultimately subtracting 0.9 percentage points from the overall headline GDP growth. Decreased exports also acted as a macroeconomic headwind during the quarter.
Despite the public sector drag, private domestic demand remained durable:
- Consumer Spending: Personal consumption continued to anchor the economy, rising 2.4% and contributing 1.6 percentage points to Q4 growth. This was largely driven by household spending on services, even as purchases of durable goods pulled back.
- Business Investment: Private investment remained sturdy, with nonresidential fixed investment adding 0.5 percentage points to the GDP. This was supported by ongoing capital expenditures in the technology and artificial intelligence sectors, which offset a depressed housing market where residential investment fell 1.5%.
Full-Year 2025 Performance For the full year of 2025, U.S. real GDP expanded by 2.2%, moderating from the 2.8% growth seen in 2024. The data reflects an economy that managed to avoid a severe contraction while operating in a high-cost, high-interest-rate environment characterized by heightened trade volatility.
Meanwhile, inflation showed signs of stickiness. The core Personal Consumption Expenditures (PCE) price index, which excludes food and energy and is the Federal Reserve’s preferred inflation gauge, increased 2.7% in Q4 and 2.8% for the full year.
The BEA is scheduled to release its second, updated estimate for Q4 2025 GDP on March 13, 2026, which will incorporate more complete data.