U.S. growth slowed more than expected toward the end of 2025 as the government shutdown impacted spending and investment, while a key inflation indicator showed high prices remain a factor for the economy, data showed Friday.
Gross domestic product rose at an annualized rate of just 1.4%, according to the Commerce Department, well below the Dow Jones estimate of a 2.5% gain.
Consumer spending grew at a slower pace over the period, while government spending fell sharply in a quarter marked by a record shutdown. The ministry estimated that the closure subtracted about 1 percentage point from growth, while adding that the exact impacts “cannot be quantified.”
For the whole of 2025, the US economy grew at a rate of 2.2%, compared to 2.8% in 2024.
“The federal government shutdown clearly knocked the economy out of its strong growth in the fourth quarter, which is a one-time phenomenon that will not recur in early 2026,” said Chris Rupkey, chief economist at Fwdbonds.
Just before the data was released, President Donald Trump warned that the GDP figure would be weak, attributing this to the government shutdown that ended in November.
“The Democrats’ Shutdown cost the United States at least two points of GDP. That’s why they’re doing it again, in miniature form. No Shutdown!” Trump said in a Truth on social media. “Also, interest rates are lower. Powell ‘Two Late’ is the worst!!!”
The last part of the message referred to the chairman of the Federal Reserve. Jerome Powellwhich Trump has repeatedly criticized for not lowering rates more aggressively.
Even as growth slowed, inflation remained firm in December, according to the gauge most watched by Fed officials.
The core personal consumption expenditure price indexwhich excludes food and energy, rose 3% in December, up 0.2 percentage points from November, according to a separate release. That matched consensus forecasts, but kept the pivotal measure of inflation well above the Fed’s 2% target.
In general terms, the PCE index accelerated by 2.9%, or 0.1 percentage points more than expected.
Both indices increased by 0.4% over the month, compared to 0.3% expected respectively.
On a monthly basis, prices of goods increased by 0.4% while services increased by 0.3%, indicating that price pressures remained relatively widespread rather than concentrated in a single category. Fed policymakers watched this balance closely to see whether inflation was driven by temporary tariff-related pressures that would hit goods, or by more fundamental demand-driven factors that would manifest in services.
The Fed lowered its benchmark rate by three-quarters of a percentage point at the end of 2025, but has since signaled a more cautious approach as officials assess inflation progress as well as risks to the labor market.
While Trump blamed the shutdown, the Commerce Department said the deceleration in GDP, which grew at a rate of 4.4% in the third quarter, was the result of a decline in consumer spending and exports, as well as the impact of the government shutdown that ran from October 1 to November 12.
“The government shutdown hurt growth in late 2025. The economy will likely rebound in early 2026, but prolonged shutdowns are not insignificant,” said Heather Long, chief economist at Navy Federal Credit Union. “Overall, the U.S. economy held up in 2025 despite numerous headwinds. Strong consumption and the AI boom have kept the economy growing.”
Personal consumption expenditures, a gauge of consumer spending, rose 2.4% in the quarter, down from the previous period’s 3.5% gain. Exports fell 0.9% after jumping 9.6% in the third quarter.
Even though the headline GDP numbers looked weak, the underlying signs of demand were strong.
Another key Fed indicator, called final sales to domestic private buyers, showed a 2.4% increase for the quarter, half a percentage point lower than the previous quarter but still indicative of strong underlying demand in the $31.5 trillion U.S. economy.
Furthermore, gross private domestic investment increased by 3.8% after remaining stable in the third quarter.
In contrast, public spending and investment fell 5.1%, driven by a 16.6% drop at the federal level that was only partially offset by a 2.4% increase in state and local entities.
