The US Commerce Department revised fourth-quarter GDP growth down to an annualized rate of just 0.7%, a significant decrease from the previous estimate of 1.4% and well below the Dow Jones consensus forecast of 1.5% [1]. This marks a notable slowdown compared to the 4.4% gain in the prior period, with the revision attributed primarily to a record-long government shutdown that caused government spending to fall by 16.7% [1]. For the full year, GDP increased by 2.1%, which is one-tenth of a percentage point lower than the previous reading, while the economy grew at a 2.8% pace in 2024 [1].
The Bureau of Economic Analysis (BEA) cited adjustments in consumer and government spending and exports as reasons for the downward revision, with a smaller decline in imports than previously estimated [1]. Consumer spending rose 2% in the quarter, following a 0.4 percentage point downward revision, and was down from a 3.5% increase in the third quarter. The largest contributor to the downward revision was reduced spending on services, particularly health care [1].
Inflation data for January showed price increases running ahead of the Federal Reserve's target. The personal consumption expenditures (PCE) price index rose 0.3% for the month, resulting in an annual rate of 2.8%, while core PCE inflation (excluding food and energy) increased 0.4% in January and 3.1% over the past 12 months. The core reading was 0.1 percentage point higher than December, indicating persistent inflation pressures [1].
A separate Commerce Department report revealed that orders for durable goods were flat in January, missing the estimate for a 1.3% gain but improving from a 0.9% decline in December. Excluding transportation, orders rose 0.4% [1]. David Russell, global head of market strategy at TradeStation, commented, "The big downward revision in GDP is a gut check going into this energy crunch, increasing the risk of stagflation. The soft January durable goods data also suggests the economy entered this crisis weaker than hoped. This creates challenges for investors with PCE inflation still running well above the Fed's target" [1].
While the data is somewhat dated, it provides a snapshot of inflation pressures and economic growth as the US heads into a period of uncertainty following the Supreme Court decision voiding many of President Donald Trump's tariffs [1].
CONCLUSION
The sharp downward revision in GDP growth and persistent inflation pressures signal increased risks for the US economy, including the possibility of stagflation. Weak durable goods data and elevated core inflation pose challenges for investors, with market sentiment turning negative as growth slows and inflation remains above the Federal Reserve's target.