GDP Second Estimate Q4 2025: Growth Revised Down to 0.7%

The Bureau of Economic Analysis revised fourth-quarter 2025 real GDP growth down sharply to an annualized rate of 0.7 percent, a full 0.7 percentage point below the 1.4 percent advance estimate. The revision is significant by historical standards — the mean absolute revision from the advance to the second estimate has typically run around 0.5 percentage points, making this a notably large downward adjustment. The economy decelerated sharply from the 4.4 percent pace recorded in the third quarter, and the more complete source data that underpin the second estimate have only deepened that picture. For context, the government shutdown that ran from October 1 through November 12, 2025 subtracted an estimated 1.0 percentage point from real GDP growth in the fourth quarter — a material exogenous shock that is now embedded in the revised figures.

What Drove the 0.7-Point Downward Revision

The revision was broad-based, touching exports, consumer spending, government spending, and investment — with only a partial offset from imports declining less than previously estimated. The largest single driver was a downward revision to exports, concentrated in services: specifically, charges for the use of intellectual property, reflecting updated data from BEA's International Transactions Accounts. Exports contributed negative 0.35 percentage points to growth in the fourth quarter, down from a positive 1.0 percentage point contribution in the third quarter — a swing of 1.4 percentage points that alone explains a substantial share of the headline revision.

The downward revision to consumer spending was concentrated in services, partially offset by an upward revision to goods. Within services, healthcare was the largest drag — both hospital and nursing home services and outpatient services — based on new fourth-quarter data from the Census Bureau's Quarterly Services Survey. Consumer spending contributed 1.3 percentage points to fourth-quarter growth, down from 2.3 percentage points in the third quarter. Within goods, the revision was broadly upward, reflecting revised Monthly Retail Trade Survey data for November and December.

Government spending subtracted 1.0 percentage point from growth in the fourth quarter, a reversal from the 0.4 percentage point positive contribution in the third quarter. The revision within government primarily reflected a downward adjustment to state and local government structures investment, based on revised October and new November and December Census Bureau Value of Construction Put in Place data. The federal government shutdown's direct effect — estimated at roughly 1.0 percentage point subtracted from real GDP growth — is embedded in this government component, reflecting the temporary reduction in labor services supplied by furloughed federal employees.

Sub-Component Detail: Investment and Prices

Within private investment, the revision was downward for structures and intellectual property products. The structures revision was led by manufacturing structures, again drawing on revised Census Bureau construction data. The intellectual property revision primarily reflected a downward adjustment to software, based on new Quarterly Services Survey data. Real final sales to private domestic purchasers — the sum of consumer spending and gross private fixed investment, and a preferred gauge of underlying domestic demand — grew at a 1.9 percent annualized rate, revised down 0.5 percentage point from the advance estimate.

On the price side, the picture was slightly more elevated than initially reported. The gross domestic purchases price index rose 3.8 percent in the fourth quarter, revised up 0.1 percentage point from the advance estimate. The PCE price index held at 2.9 percent, and core PCE — excluding food and energy — remained at 2.7 percent, both unchanged from the advance estimate. Notably, BEA was required to impute October 2025 consumer price data because the government shutdown prevented the Bureau of Labor Statistics from collecting October CPI figures. BEA derived the missing values using the geometric mean of September and November CPIs, a methodology that introduces additional uncertainty into the fourth-quarter price estimates.

Does the Revision Change the Economic Story?

Yes — meaningfully. The advance estimate's 1.4 percent growth rate was already a sharp deceleration from Q3's 4.4 percent, but it still suggested an economy growing at roughly half its prior-quarter pace. The revised 0.7 percent rate cuts that in half again, placing Q4 2025 among the weakest quarters of the post-pandemic expansion. Real GDP grew 2.1 percent for full-year 2025, revised down 0.1 percentage point from the advance estimate — a respectable annual figure, but one that masks a pronounced deterioration in the second half of the year. The shutdown's estimated 1.0 percentage point drag is a one-time factor, but the underlying weakness in exports and the healthcare services downgrade suggest that even stripping out the shutdown effect, organic momentum was modest at best.

The third estimate, scheduled for release on April 9, 2026, will incorporate corporate profits data for the first time — a key input for equity analysts assessing margin trends. It will also bring additional source data revisions, particularly from the Census Bureau's annual retail trade revisions and updated international trade accounts. The number to watch is whether the consumer spending contribution holds near 1.3 percentage points or is revised further, which would determine whether domestic demand was genuinely softening entering 2026 or whether the healthcare services data simply came in below trend.