The U.S. economy grew at a slower pace than expected in the fourth quarter after the Commerce Department released its first forecast revision. real gross domestic product (GDP) for the last quarter.
The Bureau of Economic Analysis (BEA) released its second estimate of fourth-quarter GDP, which showed the economy grew 0.7%. That’s slower than the 1.4% estimate of economists surveyed by LSEG, and lower than the Commerce Department’s initial fourth-quarter GDP estimate of 1.4%.
Adding to this the 0.6% contraction in GDP in the first quarter of 2025, as well as the 3.8% increases in the second quarter and 4.4% in the third quarterthe U.S. economy grew at an annual rate of approximately 2.08% in 2025. This figure is subject to change as the BEA will release a final revision to the fourth-quarter GDP figure released today as new data becomes available.
The BEA noted that the increase consumer spending and investments boosted real GDP in the fourth quarter, but these gains were partly offset by a decline in exports and government spending. Imports also declined during the quarter.
The Fed’s preferred inflation gauge remained stubbornly high in January as consumer price pressures persist.
US GDP grew more slowly than expected in the fourth quarter amid a government shutdown. (iStock)
Downward revisions to exports, consumer spending, government spending and investment, as well as smaller-than-expected declines in imports, contributed to fourth-quarter GDP being 0.7 percentage points lower than forecast in the preliminary estimate.
Real final sales to domestic private buyers, which are the sum of consumer spending and gross private fixed investment, rose 1.9% in the fourth quarter. This figure has been revised downward by 0.5 percentage points from the previous estimate.
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The BEA estimated that the 43-day partial government shutdown last fall contributed to the decline in GDP, but could not quantify the full effect. (Al Drago/Getty Images)
The publication of the report was delayed by the government shutdown which ran from October to mid-November, which also affected GDP data due to its impact on federal government spending as well as consumer spending by federal workers whose paychecks were delayed.
The BEA is unable to quantify the full effects of the shutdown, although it estimates that the reduction in federal government services reduced real GDP growth in the fourth quarter by about 1 percentage point.
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Federal Reserve Chairman Jerome Powell and central bank policymakers will meet next week. (Amanda Andrade-Rhoades/Reuters)
What the experts say”With markets focused on oil prices and geopolitics, today’s numbers might go largely unnoticed. Despite signs of an economic slowdown, weaker inflation data only reinforces the view that the Fed will stay on the sidelines,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management.
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Bret Kenwell, investment analyst at eToro US, noted that “downgrades were widespread; with the most significant decline coming from personal consumption, which accounts for about two-thirds of U.S. GDP.”
“The Fed now envisions an environment in which inflation remains stable and will soon be fueled by energy, while GDP growth and the job market continue to lose momentum. This is not an easy situation for aggressive rate cuts unless the economy shows clearer signs of significant deterioration,” Kenwell added.
