US economic growth slows sharply in the fourth quarter
U.S. economic growth slowed more than expected in the fourth quarter due to disruptions from last year’s government shutdown and a moderation in consumer spending, but tax cuts and artificial intelligence investments were expected to support activity this year.
Gross domestic product increased at an annualized rate of 1.4 percent last quarter, the Commerce Department’s Bureau of Economic Analysis said Friday in its preliminary estimate of fourth-quarter GDP.
Economists polled by Reuters had forecast GDP growth of 3.0 percent.
But the survey was completed ahead of data on Thursday showing the trade deficit widened to a five-month high in December.
The economy grew by 4.4 percent in the third quarter.
The nonpartisan Congressional Budget Office estimated that the government shutdown would shave 1.5 percentage points off fourth-quarter GDP through reduced services provided by federal employees, reduced federal spending on goods and services and a temporary reduction in Supplemental Nutrition Assistance Program benefits.
CBO projects that most of the production loss will eventually be offset, if not more than $7 billion ($10.0 billion) to $14 billion ($20 billion).
Before the report was announced, President Donald Trump said on social media, “The shutdown cost the USA. It cost at least two points in GDP. That’s why they’re doing it again in mini form. There’s no shutdown! Also, INTERESTS ARE LOW.”
The report, delayed by a record 43-day government shutdown, highlighted a jobless economic expansion as well as a “K-shaped” economy in which upper-income households are doing well while lower-income consumers are struggling with high inflation and stagnant wage growth resulting from import tariffs.
These conditions have created what economists and Trump opponents call an affordability crisis.
Last year alone, 181,000 new jobs were added; This was the smallest number outside the pandemic since the Great Recession of 2009 and was down from 1.459 million in 2024.
Growth in consumer spending slowed compared to the brisk pace of 3.5 percent in the third quarter.
Economists say spending is largely driven by higher-income households and comes at the expense of savings as inflation erodes purchasing power.
Consumer spending could be negatively impacted as economists predict larger tax refunds this year due to tax cuts.
Economists estimate that AI, including data centers, semiconductors, software, research and development, will account for a third of GDP growth in the first three quarters of 2025, mitigating the effects of tariffs and reducing immigration.
The old report will probably have no impact on monetary policy.
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