U.S. progress slowed greater than anticipated close to the top of 2025 as the federal government shutdown impacted spending and funding, whereas a key inflation metric confirmed excessive costs are nonetheless an element for the financial system, based on knowledge launched Friday.
Gross domestic product rose at an annualized fee of simply 1.4%, based on the Commerce Department, effectively under the Dow Jones estimate for a 2.5% achieve.
Consumer spending elevated at a slower tempo for the interval whereas authorities spending tumbled sharply in 1 / 4 marked by the record-length shutdown. The division estimated that the shutdown subtracted about 1 share level from progress, although it added that the precise impacts “cannot be quantified.”
For the total 12 months in 2025, the U.S. financial system grew at a 2.2% tempo, down from the two.8% enhance in 2024.
“The Federal government shutdown clearly sent the economy careening off its strong growth path in the fourth quarter which is a one-off that won’t be repeated in early 2026,” stated Chris Rupkey, chief economist at Fwdbonds.
Just earlier than the info launch, President Donald Trump warned that the GDP quantity could be smooth, blaming it on the federal government shutdown that led to November.
“The Democrat 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!” Trump stated in a Truth Social post. “Also, LOWER INTEREST RATES. ‘Two Late’ Powell is the WORST!!!”
The latter a part of the put up was a reference to Federal Reserve Chair Jerome Powell, whom Trump has repeatedly criticized for not reducing charges extra aggressively.
While progress slowed, inflation held agency in December, based on the gauge most carefully watched by Fed officers.
The core personal consumption expenditures price index, which excludes meals and vitality, rose 3% in December, up 0.2 share level from November, based on a separate launch. That matched the consensus forecast however saved the pivotal inflation measure effectively above the Fed’s 2% goal.
On a headline foundation, the PCE index accelerated 2.9%, or 0.1 share level larger than anticipated.
Both indexes rose 0.4% for the month, in contrast with the respective forecasts for 0.3%.
On a month-to-month foundation, items costs climbed 0.4% whereas providers elevated 0.3%, indicating that value pressures remained comparatively broad-based fairly than concentrated in any single class. Fed policymakers have been watching that stability carefully to see whether or not inflation is being spurred by momentary tariff-related pressures that may hit items, or extra basic demand-driven elements that may present up in providers.
The Fed lower its benchmark fee by three-quarters of a share level in late 2025 however has since signaled a extra cautious strategy as officers assess progress on inflation alongside dangers to the labor market.
While Trump blamed the shutdown, the Commerce Department stated the deceleration in GDP, which grew at a 4.4% fee within the third quarter, was the lead to a pullback in shopper spending and exports, in addition to the affect from the federal government closure that ran from Oct. 1 to Nov. 12.
“The government shutdown hurt growth at the end of 2025. The economy will likely bounce back in early 2026, but it isn’t harmless to do prolonged shutdowns,” stated Heather Long, chief economist at Navy Federal Credit Union. “Overall, the U.S. economy was resilient in 2025 despite many headwinds. Solid consumption and the AI boom kept the economy growing.”
Personal consumption expenditures, a proxy for shopper outlays, rose 2.4% within the quarter, down from the three.5% achieve within the prior interval. Exports fell 0.9% after surging 9.6% in Q3.
Though the headline GDP quantity regarded weak, underlying indicators of demand have been robust.
Another key Fed metric, known as closing gross sales to non-public home purchasers, posted a 2.4% enhance for the quarter, half a share level decrease than the prior quarter however nonetheless indicative of stable underlying demand within the $31.5 trillion U.S. financial system.
Also, gross non-public home funding rose 3.8% after being flat in Q3.
On the draw back, authorities spending and funding slid 5.1%, slammed by a 16.6% tumble on the federal stage that was solely partially offset by a 2.4% enhance from state and native entities.
