The U.S. economy expanded at a 1.4 percent annual rate in the fourth quarter of 2025, with the October-November government shutdown subtracting approximately one percentage point from growth, according to the Bureau of Economic Analysis’s advance estimate released Friday.
Without the shutdown, the economy would have grown at roughly 2.4 percent, still a deceleration from the third quarter’s blistering 4.4 percent pace, but a more modest slowdown. The report underscores how the 43-day government closure weighed on economic activity even as the private sector continued to expand.
Consumer spending and business investment drove the quarter’s growth, while an improving trade balance also contributed positively. The composition suggests the economy is rebalancing away from government-led expansion toward private sector-driven growth.
“The full effects of the partial federal government shutdown on the fourth-quarter estimates cannot be quantified because they are embedded in the regular source data,” the BEA noted, but estimated that the reduction in federal employee services alone subtracted about 1.0 percentage point from real GDP growth.
President Trump, writing on his Truth Social account, estimated that the shutdown subtracted two points from GDP. He also called on the Federal Reserve to lower interest rates.
Federal government spending plunged at a 16.6 percent annual rate in the fourth quarter, with both defense and nondefense consumption falling sharply. Because furloughed federal employees ultimately received back pay, the shutdown had no impact on current-dollar federal compensation, instead showing up as a temporary increase in the prices paid for federal employee services.
Consumer spending contributed 1.58 percentage points to fourth-quarter growth, with services leading the way. Business investment added 0.66 percentage points, driven by increases in intellectual property products, equipment, and inventory accumulation.
The trade balance made a modest positive contribution as imports declined more than exports. Imports, which subtract from GDP calculations, fell at a 1.3 percent rate in the quarter.
For the full year 2025, the economy grew 2.2 percent, down from 2.8 percent in 2024. The slowdown primarily reflected decreases in consumer spending and investment compared to the prior year.
Inflation measures showed mixed signals. The PCE price index increased 2.9 percent in the fourth quarter, up from 2.8 percent in the third quarter. However, core PCE inflation (excluding food and energy) eased to 2.7 percent from 2.9 percent.
The report was originally scheduled for release on January 29 but was postponed due to the government shutdown, which prevented the Bureau of Labor Statistics from collecting October consumer price data. The BEA derived replacement price indexes using the geometric mean of September and November figures.
Consumer spending grew 2.4 percent in the quarter, a deceleration from the third quarter’s 3.5 percent pace but still solid. Services spending increased 3.4 percent, led by healthcare and other services including international travel. Goods spending was essentially flat, with a decline in durable goods offsetting gains in nondurables.
Business fixed investment increased 2.6 percent, with nonresidential investment up 3.7 percent. Intellectual property investment, which includes research and development spending, jumped 7.4 percent—reflecting continued corporate investments in technology and innovation.
The composition of growth suggests the economy is shifting toward a more sustainable path after several quarters of government-heavy expansion. Private domestic final sales—the sum of consumer spending and business fixed investment—increased 2.4 percent in the fourth quarter.
State and local government spending increased 2.4 percent, partly offsetting the federal decline and highlighting the divergence between federal dysfunction and continued state and local government operations.
The advance estimate will be revised twice in coming months as more complete source data become available.
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