Growth in the US slowed at the end of last year, as consumer spending slackened and the federal government shut down.
The world’s largest economy grew at an annual pace of 1.4%% in the three months to December, falling back from a robust 4.4% in the prior quarter.
It capped a turbulent year for the US economy, which has been buffeted by new tariffs, a crackdown on immigration, cuts to government spending and persistent inflation.
Overall, the economy grew 2.2% in 2025, performing better than many had anticipated in the face of those pressures.
“The core of the economy is resilient,” Michael Pearce, chief US economist at Oxford Economics wrote on Friday, adding that he expected growth to pick up again this year.
Despite the underlying momentum, sharp swings in trade policy last year sent the economic data on a roller coaster ride.
The year started in a mild contraction, fuelled in part by a jump in imports – which subtract from growth in calculations of gross domestic product (GDP) – as firms rushed goods into the country ahead of anticipated tariffs.
Growth bounced back in the spring and summer, as foreign imports slowed, before decelerating again in the final months of the year, as imports started to recover.
The release of trade data on Thursday – which showed the trade deficit widening in December – had prompted a flurry of last-minute, downward revisions to growth forecasts for the October-December period.
But the slowdown was still more severe than many economists had anticipated.
While private investment picked up, it remained largely concentrated in intellectual property and IT-related equipment.
Consumer spending rose 2.4%, cooling from 3.5% in the prior quarter.
Government spending plunged more than 16%.
“The government shutdown ended up being a much bigger drag on the economy” than other data had suggested, Paul Ashworth, chief North America economist at Capital Economics wrote in a note. He said he expected that decline to be reversed in the months ahead.
Before publication of the report, US President Donald Trump tried to temper expectations, pointing to the shutdown, which he blamed on Democrats. He said it “cost the USA at least two points in GDP”.
In its report, the Commerce Department estimated that losses from the suspension of federal government services had subtracted one percentage point from GDP in the fourth quarter, while noting that the full impact was likely larger.
A separate report showed an uptick in the measure of inflation preferred by the US central bank – the Personal Consumption Expenditures (PCE) price index. It hit 2.9% in December, up from 2.8% in the prior month.
While analysts said the fourth quarter slowdown was unlikely to cause significant alarm, given the role of the shutdown, they said the inflation figure could give Federal Reserve officials pause.
“This PCE report is a reality check,” Olu Sonola, head of US economics at Fitch Ratings wrote in a note. He added that the figures could undercut arguments for the bank to start lowering interest rates again this year.
“The market may be pricing multiple cuts this year—but the Fed’s preferred inflation gauge is telling policymakers, ‘Not yet’,” he said.
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