U.S. growth slowed more than expected near the end of 2025 as the government shutdown impacted spending and investment, while a key inflation metric showed high prices are still a factor for the economy, according to data released Friday.
Gross domestic product rose at an annualized rate of just 1.4%, according to the Commerce Department, well below the Dow Jones estimate for a 2.5% gain.
Consumer spending increased at a slower pace for the period while government spending tumbled sharply in a quarter marked by the record-length shutdown. The department estimated that the shutdown subtracted about 1 percentage point from growth, though it added that the exact impacts “cannot be quantified.”
For the full year in 2025, the U.S. economy grew at a 2.2% pace, down from the 2.8% increase in 2024.
“The Federal government shutdown clearly sent the economy careening off its strong growth path in the fourth quarter which is a one-off that won’t be repeated in early 2026,” said Chris Rupkey, chief economist at Fwdbonds.
Just before the data release, President Donald Trump warned that the GDP number would be soft, blaming it on the government shutdown that ended in November.
“The Democrat Shutdown cost the U.S.A. at least two points in GDP. That’s why they are doing it, in mini form, again. No Shutdowns!” Trump said in a Truth Social post. “Also, LOWER INTEREST RATES. ‘Two Late’ Powell is the WORST!!!”
The latter part of the post was a reference to Federal Reserve Chair Jerome Powell, whom Trump has repeatedly criticized for not lowering rates more aggressively.
While growth slowed, inflation held firm in December, according to the gauge most closely watched by Fed officials.
The core personal consumption expenditures price index, which excludes food and energy, rose 3% in December, up 0.2 percentage point from November, according to a separate release. That matched the consensus forecast but kept the pivotal inflation measure well above the Fed’s 2% target.
On a headline basis, the PCE index accelerated 2.9%, or 0.1 percentage point higher than expected.
Both indexes rose 0.4% for the month, compared with the respective forecasts for 0.3%.
On a monthly basis, goods prices climbed 0.4% while services increased 0.3%, indicating that price pressures remained relatively broad-based rather than concentrated in any single category. Fed policymakers have been watching that balance closely to see whether inflation is being spurred by temporary tariff-related pressures that would hit goods, or more fundamental demand-driven factors that would show up in services.
The Fed cut its benchmark rate by three-quarters of a percentage point in late 2025 but has since signaled a more cautious approach as officials assess progress on inflation alongside risks to the labor market.
While Trump blamed the shutdown, the Commerce Department said the deceleration in GDP, which grew at a 4.4% rate in the third quarter, was the result in a pullback in consumer spending and exports, as well as the impact from the government closure that ran from Oct. 1 to Nov. 12.
“The government shutdown hurt growth at the end of 2025. The economy will likely bounce back in early 2026, but it isn’t harmless to do prolonged shutdowns,” said Heather Long, chief economist at Navy Federal Credit Union. “Overall, the U.S. economy was resilient in 2025 despite many headwinds. Solid consumption and the AI boom kept the economy growing.”
Personal consumption expenditures, a proxy for consumer outlays, rose 2.4% in the quarter, down from the 3.5% gain in the prior period. Exports fell 0.9% after surging 9.6% in Q3.
Though the headline GDP number looked weak, underlying signs of demand were strong.
Another key Fed metric, called final sales to private domestic purchasers, posted a 2.4% increase for the quarter, half a percentage point lower than the prior quarter but still indicative of solid underlying demand in the $31.5 trillion U.S. economy.
Also, gross private domestic investment rose 3.8% after being flat in Q3.
On the downside, government spending and investment slid 5.1%, slammed by a 16.6% tumble at the federal level that was only partially offset by a 2.4% increase from state and local entities.
Correction: Final sales to private domestic purchasers posted a 2.4% increase for the quarter, half a percentage point lower than the prior quarter. An earlier version misstated a time element.
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