Washington reports: the U.S. economy slowed in the final quarter of 2025 due to the consequences of the historic government shutdown that affected business activity. For the year, the weakest growth since the pandemic era.
Nevertheless, analysts were not catastrophically pessimistic. They believed that the global economy would weather the blow thanks to resilient consumer demand, despite tariffs imposed by the Trump administration in the spring, as well as migration measures. Ultimately, 2025 brought noticeable growth, which many experts attribute to spending by higher-income households.
According to the Commerce Department, gross domestic product grew at an annual rate of 1.4% in the fourth quarter. This is well below the 4.4% in the previous, third quarter, and below medium-term forecasts. The figure is adjusted for seasonal fluctuations and inflation.
Overall for 2025, the economy rose by 2.2%, the slowest pace of growth since 2020.
«Excellent, given how tight the labor supply has been.»
«One could call this the ‘Goldilocks’ middle.»
According to the study, government spending cuts due to the shutdown reduced growth by 1.1 percentage points at an annual rate in the fourth quarter. Economists expect that most of these losses will be recouped in the early part of next year.
Also, the pace of growth was influenced by weaker consumer demand for goods, which affected the overall pace of GDP growth in the period.
The fourth quarter was also delayed due to earlier government difficulties with releasing statistics.
Consumer spending, the main driver of the American economy, in the fourth quarter rose to 1.4% at an annual rate, but after inflation the real pace was only 0.1% compared with November. Over the year, spending remained uneven across income groups: wealthier households spent more, while lower-income households faced pressure from rising debt, a slowing labor market, and rising inflation.
“Consumer spending was expected to grow more slowly in the final quarter of 2025, as some households had just spent money on a new car ahead of the expiration of electric-vehicle tax credits,” said Brett Ryan, Senior US Economist at Deutsche Bank.
Nevertheless, Ryan believes that the main engine of growth will return in the first half of the year, largely thanks to tax refunds, and adds that “it seems there is nothing really that would raise serious doubts about an imminent slowdown in consumption.”
Income inequality increased last year, which affected the expectations of households in less favorable financial positions. In a separate University of Michigan report, it was noted that consumer sentiment diverged between those with higher education and stock market assets and those without.
«A notable monthly uptick in sentiment among the largest shareholders was completely offset by a decline among consumers without stocks.»
Business spending in the fourth quarter rose to 3.7% from 3.2% in the previous period. Ryan adds that “investments in artificial intelligence continue to play a significant role on the business investment side.”
Changes in Income, Savings, and Inflation
A separate Commerce Department report found that consumer spending in December remained positive, but its support was weakening, while inflation rose to the highest level in almost two years.
Consumer spending rose 0.4% in December, but after adjusting for inflation the pace was only 0.1% from November. Personal incomes rose 0.3% for the month, partly due to payments related to losses from the Maui wildfires; after inflation cooled, incomes rose only modestly.
Savings as a share of after-tax income fell to 3.6% – the lowest level since October 2022.
The inflation index the Fed regards as key remained elevated – the PCE – at 2.9%, bringing it close to the 2% target. This is the highest annual reading since March 2024. Price increases for goods supported monthly inflation at 0.4%, and the tariffs imposed by the United States on imports pushed up prices for furniture, appliances, and toys.
After excluding volatile energy and food components, the core inflation index – the PCE – rose 0.4% for the month, with a yearly rate of 3%.
The material was prepared by John Tafigi and Matt Egan of CNN.