US economy grew slower than expected in fourth quarter

The U.S. economy grew at a much slower than expected pace in the fourth quarter, according to new data released on Wednesday.

The Commerce Department's Bureau of Economic Analysis (BEA) released its advance estimate for fourth quarter gross domestic product (GDP), which found the U.S. economy grew at an annual rate of 1.4% in the fourth quarter, which runs from October through December.

Economists surveyed by LSEG had expected the economy to grow at a 3% rate in the quarter. The fourth quarter's 1.4% growth was slower than the 4.4% GDP growth recorded in the third quarter.

Taken together with the 0.6% GDP contraction in the first quarter of 2025 and the 3.8% increase in second quarter GDP, the U.S. economy grew at an annual rate of 2.25% in 2025. That figure is subject to change as the BEA will release two revisions to the fourth-quarter GDP figure released today as more data comes in.

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The BEA noted that the rise in consumer spending and investment boosted real GDP in the fourth quarter, but those gains were partly offset by decreases in government spending on exports. Imports also declined in the quarter.

The report noted that real final sales to private domestic purchasers – which is the sum of consumer spending and gross private fixed investment – rose 2.4% in the fourth quarter, down from an increase of 2.9% in the third quarter.

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The release of the report was delayed by the partial government shutdown that ran from October until mid-November, which also affected the GDP data because of its impact on the federal government's spending.

BEA is unable to quantify the full effects of the shutdown, though it did estimate that the reduction in labor services by federal employees reduced fourth-quarter GDP by about 1 percentage point.

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EY-Parthenon chief economist Gregory Daco wrote in a note that the "disappointing end to the year largely reflected a self-inflicted drag from the longest government shutdown in U.S. history."

"Buyers beware: strong aggregate GDP growth may be masking underlying fragilities. Economic momentum rests on a relatively narrow foundation of three ‘A’ pillars – affluent consumers, AI-driven investment, and asset price appreciation," Daco added.

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"Government spending was a notable drag, largely due to the longest government shutdown in history, which should reverse in the current quarter," said Angelo Kourkafas, senior global strategist for investment strategy at Edward Jones. 

"For full-year 2025, U.S. GDP still posted a solid 2.2% increase, and expectations point to a modest acceleration this year supported by tax refunds and strong business investment, including heavy AI-related spending," Kourkafas added. "Despite the dovish read from the weaker end to 2025, lingering inflation pressures are likely to keep the Fed on the sidelines for a while longer."