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The U.S. economy grew at a sluggish 0.7% annual rate in the fourth quarter of 2025, half the government's initial estimate, as last fall's prolonged government shutdown took a heavy toll on federal spending, according to the Commerce Department, which released the revised figures on Friday (March 13).
The downgrade was a surprise. Economists had expected the revision to show stronger growth, not weaker. The 0.7% figure marks a steep drop from the 4.4% growth recorded in the third quarter of 2025 and the 3.8% posted in the second quarter.
The Commerce Department's report points squarely at last fall's 43-day government shutdown as a key culprit. Federal government spending and investment plunged at a 16.7% annual rate during the fourth quarter, slicing 1.16 percentage points off overall growth. That single factor played a major role in dragging the headline number down.
For all of 2025, gross domestic product (GDP) grew 2.1%, which was slightly below the 2.2% growth recorded in both 2024 and 2023.
Consumer spending, which drives the bulk of U.S. economic activity, grew at a 2% rate in the fourth quarter, down from 3.5% in the third quarter. Business investment, excluding housing, rose at a 2.2% pace, likely fueled in part by heavy spending on artificial intelligence, but that was also a step down from 3.2% in the previous quarter.
The labor market is adding to concerns about the economy's direction. Last month alone, companies, nonprofits, and government agencies cut 92,000 jobs. Throughout 2025, employers added fewer than 10,000 jobs per month on average — the weakest hiring pace outside of a recession since 2002.
The U.S. economy has shown some resilience in the face of sweeping import taxes and mass deportations under President Trump's administration. However, the war with Iran has pushed oil and gas prices higher, further clouding the economic outlook.
Friday's GDP report was the second of three scheduled estimates for fourth-quarter growth. The final report is due Wednesday (April 9).