U.S. Economic Growth Slows Sharply to 0.7% in Fourth Quarter as Shutdown and Global Pressures Weigh on Outlook

BY EMMANUEL OGBONNA

The United States economy expanded at a markedly slower pace than previously believed during the final months of last year, according to revised figures released Friday by the Commerce Department. Gross domestic product — the broadest measure of the nation’s economic output — grew at an annual rate of just 0.7% between October and December, a significant downgrade from the government’s initial estimate and a sign that growth momentum weakened considerably heading into the new year.

The latest reading represents a steep deceleration from the stronger performance recorded earlier in the year. Economic growth had reached an annualized pace of 4.4% in the third quarter and 3.8% in the second, highlighting how sharply activity slowed toward year’s end. Economists had widely anticipated that the updated data would point to firmer expansion, making the downward revision an unwelcome surprise for policymakers and investors alike.

A major factor behind the subdued performance was the 43-day federal government shutdown in the autumn, which significantly disrupted public sector spending and investment. Government outlays plunged at an annualized rate of 16.7% during the quarter, slicing more than a full percentage point from overall economic growth. The prolonged budget impasse not only reduced direct government expenditures but also created ripple effects across industries that depend on federal contracts and regulatory clarity.

For the full year, the economy still managed to post moderate growth of 2.1% in 2025. However, that figure was slightly below earlier projections and marked a slowdown from expansion rates of 2.8% in 2024 and 2.9% in 2023. The gradual cooling trend suggests that the world’s largest economy may be entering a period of more restrained growth following several years of relatively robust performance.

Household spending, which accounts for the majority of economic activity in the United States, also lost momentum during the fourth quarter. Consumer expenditures increased at an annual pace of 2%, down from 3.5% in the preceding quarter and below the government’s initial estimate. The softer spending growth reflected a combination of factors, including higher borrowing costs, rising energy prices, and uncertainty linked to geopolitical tensions and domestic fiscal disputes.

Business investment outside the housing sector provided a partial offset, rising at a solid 2.2% rate. While this expansion underscored continued corporate commitment to long-term productivity gains — particularly in emerging technologies such as artificial intelligence — it nevertheless represented a slowdown from the 3.2% growth recorded in the third quarter. It also fell short of the government’s earlier projection, indicating that companies became more cautious as economic headwinds intensified.

Trade also weighed on overall performance. Exports declined at an annual rate of 3.3% in the fourth quarter, a sharper drop than previously estimated. Weak external demand and disruptions to global supply chains contributed to the downturn, underscoring the vulnerability of U.S. manufacturers and exporters to shifting international conditions.

A closely watched component of the GDP report, which measures the underlying strength of the economy by combining consumer spending with private investment while excluding more volatile elements such as trade flows and inventory changes, likewise showed reduced vigor. This gauge rose at an annual pace of 1.9%, down from 2.9% in the third quarter and below earlier estimates. The weaker reading suggested that domestic demand — often viewed as the engine of sustainable growth — may be losing some of its resilience.

Despite the slowdown, the U.S. economy has demonstrated a degree of durability in the face of sweeping policy changes and external shocks. Measures including new import tariffs and stricter immigration enforcement have reshaped labor markets and supply chains, while geopolitical tensions — notably the ongoing conflict involving Iran — have driven up oil and gas prices, adding further uncertainty to the outlook.

Labor market conditions have also shown signs of strain. Employers across the private and public sectors cut approximately 92,000 jobs last month, according to recent data, and hiring throughout 2025 averaged fewer than 10,000 new positions per month. This represents the weakest pace of job creation outside recessionary periods in more than two decades, raising concerns that slower employment growth could eventually dampen consumer confidence and spending.

Friday’s figures constitute the second of three official estimates of fourth-quarter economic activity. A final revision, scheduled for release on April 9, is expected to provide additional clarity on the extent of the slowdown and its implications for monetary policy, fiscal planning, and financial markets. Until then, economists are likely to scrutinize incoming data for signs of whether the recent softness reflects temporary disruptions or the beginning of a more prolonged moderation in economic growth.