US Economic Expansion Decelerated in Q4 2025 Due to Government Shutdown

The economic growth in the United States experienced a more significant slowdown than analysts had predicted during the last quarter of the year. This was largely attributed to the residual effects of last year’s government shutdown and a noticeable drop in consumer spending. However, experts are optimistic that ongoing tax cuts and an increase in investment in artificial intelligence will help spur economic activity in the current year.

According to the advanced estimate provided by the Commerce Department’s Bureau of Economic Analysis, the Gross Domestic Product (GDP) grew at an annualized rate of 1.4% during the fourth quarter. This figure fell short of the predictions made by economists featured in a Reuters poll, who forecasted a growth rate of 3.0%. It is important to note that this poll was conducted prior to the release of data showing that the trade deficit had widened to its highest level in five months during December.

In stark contrast, the economy had expanded at an impressive rate of 4.4% in the previous quarter, showcasing a sharp decline in momentum. A noteworthy analysis from the nonpartisan Congressional Budget Office (CBO) estimated that the government shutdown was responsible for a reduction of 1.5 percentage points from fourth-quarter GDP. This was due to the diminished services provided by federal employees, decreased federal spending on goods and services, and a temporary cutback in Supplemental Nutrition Assistance Program benefits.

The CBO indicated that while a portion of the lost economic output would be recuperated in due course, an estimated $7 billion to $14 billion might not be recoverable.

Prior to the release of these economic statistics, former President Donald Trump expressed his opinions on social media, claiming that the shutdown had cost the United States a minimum of two percentage points in GDP. He further contended that this was a strategic move, suggesting, “That’s why they are doing it, in mini form, again. No Shutdowns! Also, LOWER INTEREST RATES.”

The report, which experienced delays due to the unprecedented 43-day government shutdown, underscored the peculiar situation of an economically expanding landscape juxtaposed with jobless growth. It painted a picture of a “K-shaped” economy, where higher-income households are prospering while lower-income families face challenges amid rising inflation fueled by import tariffs and stagnating wage growth.

Such economic disparities have fostered what many economists, as well as Trump’s political adversaries, label as an affordability crisis. In 2025, only 181,000 jobs were created—the lowest number recorded outside the pandemic since the Great Recession of 2009—and a significant drop from 1.459 million in 2024.

Additionally, growth in consumer spending has noticeably tapered off compared to the robust 3.5% surge seen in the third quarter. Analysts have opined that consumer spending predominantly reflects the behaviors of higher-income households, often taking a toll on savings and purchasing power as inflation continues to erode financial resources.

On a more positive note, consumer spending may receive a boost from projections of larger tax refunds anticipated this year as a result of the recent tax cuts. Analysts also estimated that advancements in artificial intelligence—including investments in data centers, semiconductors, software development, and research—contributed roughly a third of GDP growth in the first three quarters of 2025. This investment has helped to soften the economic impact of tariffs and the decline in immigration. Overall, it is unlikely that the stale report will significantly influence monetary policy in the near future.