The U.S. economy grew at a sluggish 0.5% annual pace in the fourth quarter of last year, according to the Commerce Department's third and final estimate released Thursday, marking a downgrade from the previous estimate of 0.7% growth [1]. This slowdown was largely attributed to the 43-day government shutdown in the fall, which caused federal government spending and investment to fall at a 16.6% annual pace, subtracting 1.16 percentage points from fourth-quarter GDP growth [1].
Consumer spending expanded by 1.9% in the fourth quarter, which was lower than both the previous estimate and the 3.5% growth recorded in the second quarter. Spending on goods, such as cars and clothing, grew just 0.3%, a sharp decline from the 3% growth seen in the July-September period [1]. Business investment, excluding housing, increased at a 2.4% pace, likely reflecting investments in artificial intelligence, but this was also down from 3.2% in the third quarter [1].
A key category within the GDP data that measures the economy’s underlying strength, which includes consumer spending and private investment but excludes volatile items like exports, inventories, and government spending, grew at a 1.8% rate in the fourth quarter, down from 2.9% in the third quarter [1]. For the full year, the economy grew 2.1% in 2025, slower than the 2.8% growth in 2024 and 2.9% in 2023 [1].
The economic outlook for this year remains uncertain, with the U.S.-Israeli war with Iran driving up energy prices and disrupting global commerce [1]. The job market was weak last year, recording the lowest hiring outside a recession since 2002, but has shown mixed results in early 2026: employers added 160,000 jobs in January, cut 133,000 in February, and then created 178,000 in March [1]. The first estimate of January-March economic growth is scheduled for release on April 30 [1].
CONCLUSION
The U.S. economy experienced a significant slowdown in the fourth quarter, primarily due to the government shutdown's impact on federal spending. Key indicators such as consumer spending and business investment also weakened, and the outlook for 2026 remains uncertain amid geopolitical tensions and volatile job market trends. Investors and analysts will be closely watching the upcoming GDP report for further signs of economic direction.