The United States economy expanded at a markedly sluggish annual pace of just 0.5% during the fourth quarter of 2025, according to the latest official figures released by the Commerce Department on Thursday. This final estimate represents a significant downgrade from the department's previous projection of 0.7% growth for the October through December period.
Impact of Government Shutdown
The report explicitly cited the disruptive 43-day federal government shutdown last autumn as a primary factor behind the economic deceleration. Federal government spending and investment plummeted at a steep annual rate of 16.6% during the quarter. This sharp contraction directly subtracted a substantial 1.16 percentage points from the overall Gross Domestic Product (GDP) growth figure.
Quarterly Slowdown and Consumer Spending
This tepid growth marks a stark slowdown from the robust performances seen earlier in the year. The US economy had registered an impressive 4.4% annualised growth rate in the third quarter (July-September) and a strong 3.8% in the second quarter (April-June).
Consumer spending, a critical engine of the American economy, also showed signs of moderation. It expanded at a 1.9% annual pace in Q4, which was revised down slightly from prior estimates and was notably weaker than the 3.5% pace recorded in the second quarter of 2025.
Full-Year Economic Performance
For the entirety of 2025, the US economy grew by 2.1%. This continues a pattern of gradual deceleration, being slower than the 2.8% growth achieved in 2024 and the 2.9% growth seen in 2023.
Uncertain Outlook and Job Market Volatility
The economic outlook for 2026 remains clouded by uncertainty. The Commerce Department noted that the U.S.-Israeli conflict with Iran has driven up global energy prices and disrupted international trade flows, creating headwinds for growth.
America's labour market reflected this turbulence. 2025 witnessed the weakest hiring performance outside of a formal recession since 2002. The start of 2026 has been characterised by volatility: employers added a healthy 160,000 jobs in January, then cut 133,000 positions in February, before posting a surprising gain of 178,000 jobs in March.
Final Estimate and Future Data
Thursday's report constitutes the Commerce Department's third and conclusive estimate for fourth-quarter GDP. The department's initial assessment of economic growth for the first quarter of 2026 (January-March) is scheduled for release on April 30.
