U.S. Economy Grew Modestly at End of 2025

The U.S. economy slowed sharply at the end of 2025 to cap a volatile year in which consumer spending and an A.I. investment boom helped keep growth on track despite tariffs, uncertainty and the longest government shutdown in history.

Gross domestic product, adjusted for inflation, grew at a 1.4 percent annual rate in the final three months of the year, the Commerce Department said on Friday. That was down from a 4.4 percent rate in the third quarter, partly because of the prolonged shutdown.

It was a fittingly messy end to a year in which the economy proved more resilient than many forecasters feared, but fell far short of the revival that President Trump promised on the campaign trail.

Inflation, which Mr. Trump promised to end “on day one,” picked up in 2025. The trade deficit in goods, which Mr. Trump promised to shrink, hit a record high. The manufacturing sector, which Mr. Trump promised to restore, shed jobs.

And while economic growth ultimately held solid for the year as a whole, the gains were unevenly distributed, with a rising stock market benefiting the wealthy even as other households struggled to manage rising prices and a slowing job market.

“The economy has the patina of gold, but underneath, it is not solid — it is gilded,” said Diane Swonk, the chief economist at KPMG.

G.D.P. in the fourth quarter would have looked substantially stronger had it not been for the 43-day government shutdown, which left hundreds of thousands of public sector employees without paychecks. The shutdown may have lowered growth by about one percentage point at the end of 2025, the Commerce Department estimated, but the effect will be temporary: Furloughed workers eventually received back-pay, and growth should rebound by a similar amount in early 2026.

The numbers are preliminary and will be revised at least twice in the coming months.

Given the volatility in the quarterly data, many economists instead focused on the year as a whole. G.D.P. increased 2.2 percent in 2025, measured from the end of 2024, compared with 2.3 percent the previous year. That represented solid growth, once again surprising forecasters, who in recent years have repeatedly predicted slowdowns or outright recessions, only to see growth continue.

“For three years now there’s been this conceit that this is the year the economy slows down,” said Aditya Bhave, an economist at Bank of America. What the growth figures show, he said, is that “this is a very solid, very resilient economy.”

The White House, in a statement, said the G.D.P. report “showed that President Trump continues to deliver robust private sector-led economic growth with strong consumption and investment.”

But beneath that resilience were signs of trouble. Job growth ground nearly to a halt in 2025, sapping workers’ bargaining power. Important sectors of the economy, including housing, are mired in a slump. Mr. Trump’s trade policies have taken a toll on farmers and factories and driven up the price of imported goods.

Separate data from the Commerce Department on Friday showed that consumer prices rose 2.9 percent in December from a year earlier, the fastest pace since March 2024. After-tax income, adjusted for inflation, was flat in December.

Nonetheless, consumers have continued to power the economy. Consumer spending increased at a 2.4 percent rate in the fourth quarter and grew 2.2 percent over the full year. But that spending was concentrated among wealthier households, whose incomes were lifted by the rising stock market.

That inequality “helps explain why the average household is frustrated with an economy that seems to be clicking on all cylinders,” said Michael Gapen, chief U.S. economist for Morgan Stanley. “It’s clicking on all cylinders for a few people, but not for everyone.”

A similar winners-and-losers story is playing out in the business sector. Farmers and factories are struggling under the weight of Mr. Trump’s trade policies. Nearly anything connected to artificial intelligence is booming.

The A.I. industry’s voracious appetite for data centers and the electricity to power them helped drive the 3.7 percent growth rate in business investment in the fourth quarter. Many of the chips and other components that go into such facilities are imported, meaning they aren’t counted in G.D.P. But A.I.-related investments were nonetheless an important contributor to growth last year.

The A.I. boom helped mask weakness elsewhere in the economy. Construction of new factories fell in 2025. So did home building.

“It’s a winner take all construction economy,” said Anirban Basu, the chief economist at Associated Builders and Contractors, a trade group. “If you’re a large general contractor that can manage large data center projects, you’re a winner. If you’re a smaller contractor, the world is increasingly difficult.”

The reliance on A.I. could make the economy vulnerable if investors sour on the industry. So far, however, most forecasters are predicting that growth will accelerate in 2026. Tax cuts passed by Congress last year should help consumers and businesses in the short-term, as should the interest rate cuts that Federal Reserve policymakers enacted late last year. If trade policy stabilizes in 2026, that will also help businesses become more confident. And so far, at least, there is little sign that companies are pulling back on their A.I.-related investments.

“History tells us it will happen, the boom-bust cycle,” Mr. Gapen said. “But will it happen in 2026? I think it’s early for that.”