U.S. growth slowed more than expected near the end of 2025 as the government shutdown affected spending and investment, but a key inflation measure showed high prices remained a factor in the economy, data released Friday showed.
According to the Commerce Department, gross domestic product (GDP) rose at an annual rate of just 1.4%, well below the Dow Jones Industrial Average’s forecast of 2.5% growth.
While the pace of growth in consumer spending slowed during the period, government spending fell sharply in a quarter marked by a record-long shutdown. The ministry estimates that the closures reduced growth by about 1 percentage point, but added that the exact impact “cannot be quantified.”
The U.S. economic growth rate for all of 2025 will be 2.2%, slowing from 2.8% growth in 2024.
“While the federal government shutdown clearly took the economy off its strong growth path in the fourth quarter, this is a one-time event that will not be repeated in early 2026,” said Chris Rupkey, chief economist at Forwardbonds.
Just before the data was released, President Donald Trump warned that GDP numbers would be weak due to the government shutdown that ended in November.
“The Democratic Shutdown cost America at least 2 points of GDP, so they’re doing it again in a smaller way. No Shutdown!” Trump said in a post on Truth Social. “And the interest rates are low. Mr. Powell, who was ‘late twice’, is the worst!!!”
The second half of the post was a reference to Federal Reserve Chairman Jerome Powell, who President Trump has repeatedly criticized for not cutting interest rates more aggressively.
Growth slowed, but inflation remained steady in December, according to the indicator that Fed officials watch most closely.
In a separate statement, the core personal consumption expenditure price index, which excludes food and energy, rose 3% in December, up 0.2 points from November. This was in line with consensus expectations, but the key inflation measure remained well above the Fed’s 2% target.
On a comprehensive basis, the PCE index rose 2.9%, or 0.1 percentage points higher than expected.
Both indexes rose 0.4% for the month, compared to expectations for each index to rise 0.3%.
On a monthly basis, goods prices rose 0.4% and services rose 0.3%, indicating that price pressures remain relatively broad-based rather than concentrated in a single category. Fed policymakers are watching this balance closely to determine whether inflation is being driven by temporary tariff-related pressures hitting goods, or by more fundamental demand-driven factors that will show up in services.
The Fed cut its benchmark interest rate by three-quarters of a percentage point in late 2025, but has since signaled a more cautious approach as officials assess the evolution of inflation along with risks to the labor market.
President Trump blamed the government shutdown, but the Commerce Department said the slowdown in gross domestic product (GDP), which grew 4.4% in the third quarter, was due to weak consumer spending and exports, as well as the effects of the government shutdown that lasted from October 1 to November 12.
“The government shutdown had a negative impact on growth at the end of 2025. The economy will likely recover in early 2026, but a prolonged government shutdown is not harmless,” said Heather Long, chief economist at Navy Federal Credit Union. “Overall, despite many headwinds, the U.S. economy remained resilient in 2025. Robust consumption and the AI boom sustained economic growth.”
Personal consumption expenditures, a representative measure of consumer spending, grew 2.4% in the quarter, slowing from the 3.5% increase in the prior quarter. Exports fell by 0.9% after increasing by 9.6% in the third quarter.
Although the headline GDP numbers looked weak, signs of underlying demand were strong.
Final sales to domestic retail buyers, another key Fed measure, rose 2.4% in the quarter, down 0.5 percentage points from the previous quarter but still pointing to resilient demand in the $31.5 trillion U.S. economy.
Additionally, gross private domestic investment was flat in the third quarter, but increased by 3.8%.
On the downside, government spending and investment fell by 5.1%, with a 16.6% drop at the federal level, only partially offset by a 2.4% increase by state and local governments. In the report description, the overall impact is stated as follows:
