US Economy Slows in Final Months After Turbulent Year

Growth in the U.S. economy decelerated towards the end of last year, primarily due to a dip in consumer spending and a federal government shutdown. Here’s a detailed look at the factors contributing to this slowdown.

Key Economic Indicators

– Growth Rate: The U.S. economy achieved an annual growth rate of 1.4% in the final three months of December, a stark decrease from the robust 4.4% in the previous quarter.
– Overall Performance: Despite the challenges, the economy grew by 2.2% in 2025, exceeding many analysts’ expectations given the economic climate.

Factors Affecting Economic Performance

– Resilience Amid Challenges: Michael Pearce, chief U.S. economist at Oxford Economics, noted, The core of the economy is resilient, and expressed optimism for renewed growth in the coming year.
– Trade Policy Impact: The economic landscape experienced sharp fluctuations last year due to trade policy changes, which caused data to reflect a rollercoaster effect:
– The year commenced with a mild contraction, partly due to an influx of imports as businesses rushed to bring in goods before anticipated tariffs took effect.
– Growth rebounded in spring and summer with a slowdown in imports but faced another decline in the latter part of the year as imports began to recover.

December Surprise: Trade Deficit and Growth Revisions

– The release of trade data revealed a widening trade deficit in December, prompting numerous downward revisions to growth forecasts for the October-December period. This slowdown was more pronounced than many economists had predicted.
– While private investment saw an increase, it remained heavily focused on intellectual property and IT-related equipment.

Consumer and Government Spending

– Consumer Spending: Rose by 2.4%, down from 3.5% in the previous quarter, indicating a slowdown in economic activity.
– Government Spending: Plummeted by more than 16%, with economists like Paul Ashworth from Capital Economics highlighting that the government shutdown had a more significant negative effect on the economy than initially anticipated.

Effects of the Government Shutdown

– President Donald Trump attempted to mitigate expectations, attributing the economic slowdown to the shutdown, which he claimed cost the U.S. at least two points in GDP.
– The Commerce Department’s report suggested that the suspension of federal government services could have reduced GDP by one percentage point in the fourth quarter, with actual impacts likely being greater.

Inflation Concerns

– A separate report revealed an increase in the Personal Consumption Expenditures (PCE) price index—the inflation measure preferred by the U.S. central bank—rising to 2.9% in December, up from 2.8% in the previous month.
– Analysts believe that while the fourth quarter’s slowdown isn’t alarming, the uptick in inflation may cause Federal Reserve officials to reconsider their approach to interest rates. Olu Sonola from Fitch Ratings commented, This PCE report is a reality check, suggesting that the figures may challenge the notion of lowering interest rates in the near future.

Conclusion

The U.S. economy slowed significantly in the final months of last year, shaped by a variety of factors including consumer spending, trade policies, and government shutdowns. As we move forward into this year, key indicators such as inflation rates and private investment trends will be crucial in shaping the economic landscape. The focus remains on whether the inherent resilience of the economy can spur recovery despite the challenges faced.