US GDP Growth Slows Sharply in Q4 2025
U.S. real GDP growth slowed to an annualized rate of 1.4% in the fourth quarter of 2025, a sharp deceleration from 4.4% in the third quarter. The slowdown is attributed to softer consumer spending and a decline in business investment, increasing expectations for a potential Federal Reserve rate cut.
- The 1.4% growth figure was significantly below economists' expectations, who had forecasted growth in the range of 2.5% to 3.0%. For the full year of 2025, the economy expanded by 2.2%, a slight decrease from the 2.3% growth seen in 2024. - A record-long 43-day federal government shutdown was a primary factor in the slowdown, subtracting approximately one percentage point from fourth-quarter GDP growth. The shutdown resulted in a 17% plunge in federal outlays, which subtracted 0.9 percentage points from the overall real GDP growth figure. - While consumer spending grew at a 2.4% rate, this was a deceleration from the 3.5% pace in the third quarter and was primarily driven by affluent households. Meanwhile, the personal saving rate declined from 4.2% in the third quarter to 3.6%, suggesting consumers have smaller financial cushions. - Business investment was a relative bright spot, growing at a 3.7% annualized rate, largely masking weakness elsewhere in the economy. This growth was heavily driven by investment in the AI sector, specifically for data centers, equipment, and intellectual property products. - The slowdown occurred in a year that saw only 181,000 jobs added, the lowest number since 2009 (excluding the pandemic). The unemployment rate rose from 4.1% to 4.4% during 2025, indicating that labor demand weakened. - In response to evolving economic conditions, the Federal Reserve had already cut interest rates by 1.75 percentage points since September 2024. After a pause in January 2026, policymakers are expected to resume rate reductions later in the year, with some analysts forecasting three additional cuts.
