U.S. GDP Slows to 1.4% in Q4 2025, Shutdown Shaved 1.0pp from Growth

The U.S. economy expanded at an annualized rate of 1.4 percent in the fourth quarter of 2025, according to the Bureau of Economic Analysis's advance estimate — a sharp deceleration from the 4.4 percent pace recorded in the third quarter. This is a preliminary reading based on incomplete source data and is subject to revision; the BEA's advance estimates carry a mean absolute revision of roughly 0.5 percentage points through the third estimate. Critically, the headline figure is materially distorted by a one-time exogenous shock: the October–November 2025 federal government shutdown subtracted approximately 1.0 percentage point from real GDP growth, meaning underlying private-sector momentum was closer to 2.4 percent on an annualized basis.

The Shutdown's Outsized Footprint

The government shutdown — which ran from October 1 through November 12, 2025, due to a lapse in appropriations — created two distinct measurement complications. First, furloughed federal employees temporarily reduced the labor services supplied to the economy, and BEA estimates this drag subtracted about 1.0 percentage point from real GDP growth in the quarter. Because those employees ultimately received back pay, the shutdown had no impact on current-dollar federal compensation; instead, it was reflected as a temporary price increase for federal employee compensation services. Second, the shutdown prevented BLS from collecting October 2025 consumer price index data, forcing BEA to impute October prices using the geometric mean of September and November CPIs — an approximation that introduces additional uncertainty into the PCE price deflators underlying the GDP estimates.

The advance report itself was delayed: originally scheduled for January 29, 2026, it was rescheduled to February 20, 2026, specifically because of the shutdown's disruption to source data collection. Stripping out the shutdown effect, the underlying growth rate of approximately 2.4 percent aligns closely with the real final sales to private domestic purchasers figure — the cleanest read on private-sector demand.

Component Breakdown: Consumers and Investment Carry the Load

The contributors to fourth-quarter growth tell a more constructive story than the headline suggests:

• Consumer spending remained the primary growth driver, led by services. Within services, health care was a leading contributor — both outpatient services and hospital and nursing home services increased, based on BLS Current Employment Statistics data on employment, earnings, and hours. International travel, sourced from BEA's International Transactions Accounts, was the leading contributor within other services. Goods spending declined, partially offsetting services strength.
• Investment accelerated relative to the third quarter. Intellectual property products — particularly research and development, based on BLS CES and company R&D expense data — drove the investment gain. Private inventory investment also contributed positively, with increases in wholesale trade and manufacturing partially offset by a decrease in retail trade inventories, per Census Bureau inventory book value data. Equipment spending rose, led by information processing equipment including computers and peripherals.
• Government spending declined, reflecting a decrease in federal spending. Both nondefense and defense consumption expenditures for employee compensation fell — the direct consequence of the shutdown's furloughs.
• Exports decreased, with an important technical adjustment: BEA identified and removed an increase in exports of silver bars used as investment vehicles in Q4. Like nonmonetary gold, silver used for investment purposes is excluded from BEA's National Economic Accounts, so these transactions were stripped from the industrial supplies and materials export category.
• Imports decreased, partially offsetting the drag from the export decline, though the import decrease was smaller than in the prior quarter.

Underlying Demand and Inflation Signals

Real final sales to private domestic purchasers — which strips out volatile inventory swings and net trade — rose 2.4 percent in the fourth quarter, down from 2.9 percent in Q3. This measure provides the cleanest signal of domestic private demand and suggests the economy entered 2026 on a moderate, if decelerating, growth trajectory.

• On the price side, the gross domestic purchases price index rose 3.7 percent in Q4, up from 3.4 percent in Q3.
• The PCE price index increased 2.9 percent, compared with 2.8 percent in Q3.
• Excluding food and energy, the core PCE price index rose 2.7 percent, easing slightly from 2.9 percent in the prior quarter — a modestly encouraging signal on the inflation trajectory.

For full-year 2025, real GDP grew 2.2 percent, down from 2.8 percent in 2024. The annual PCE price index rose 2.6 percent, matching the 2024 pace, while core PCE increased 2.8 percent versus 2.9 percent in 2024 — a marginal improvement but still above the 2 percent target. The most recent monthly PCE data through January 2026 showed the headline index up 2.8 percent year over year, with the index rising 0.3 percent month over month in January after a 0.4 percent gain in December.

On revisions: the Q4 2025 GDP figure of 0.5 percent at a quarterly rate (the 1.4 percent annualized reading) was subsequently revised down from an initial 0.7 percent quarterly rate in the second estimate — a notable 0.2 percentage point downward revision that reinforces the picture of a soft quarter. PCE price index revisions for October through December 2025 were negligible, all below 0.01 percent, and do not materially affect the inflation narrative.

The second estimate for Q4 2025 GDP is scheduled for release on March 13, 2026. The key data point to watch will be whether the personal consumption expenditures component is revised upward — which would confirm that the shutdown-driven drag was indeed temporary and that private demand held firmer than the advance estimate captured. A revision toward 2 percent or above in the headline rate would validate the "underlying resilience" interpretation; a further downward revision would suggest the deceleration extended beyond the shutdown's mechanical effect.