The U.S. economy grew at a sluggish 0.5% annual pace in the fourth quarter of 2025, the Commerce Department said Thursday, downgrading its previous estimate of 0.7% and underscoring how last fall's 43-day government shutdown disrupted economic activity and weighed on workers and families nationwide.
The sharp deceleration follows stronger growth of 4.4% in the third quarter and 3.8% in the second quarter, revealing how political gridlock over government funding directly translated into measurable harm to economic momentum. For all of 2025, the economy grew 2.1%, slower than 2.8% in 2024 and 2.9% in 2023.
Shutdown's Toll on Public Investment
Federal government spending and investment fell at a 16.6% annual pace because of the shutdown, lopping 1.16 percentage points off fourth-quarter GDP growth. The collapse in public-sector activity highlights the real-world consequences when essential government functions are suspended, affecting everything from infrastructure projects to scientific research and public services that communities depend on.
Consumer spending, which drives the majority of economic activity, expanded just 1.9%, down from the previous estimate and from 3.5% in the second quarter. Spending on goods such as cars and clothing grew only 0.3%, down sharply from 3% in the July-September period, suggesting households pulled back as economic uncertainty mounted.
Business Investment Cools
Business investment, excluding housing, increased at a 2.4% pace, likely reflecting money being poured into artificial intelligence, but the increase was down from 3.2% in the third quarter. A category measuring the economy's underlying strength grew at a 1.8% clip, down from 2.9% in the third quarter, pointing to broader weakness beneath the headline figures.
Thursday's report was the Commerce Department's third and final estimate of fourth-quarter GDP. The first look at January-March economic growth is due April 30.
Uncertain Road Ahead
The economic outlook for this year was described as hazy after the U.S.-Israeli war with Iran drove up energy prices and disrupted global commerce, raising concerns about affordability and supply chain stability for working families already facing pressure from elevated costs.
Why This Matters:
The downgrade reveals how political dysfunction—specifically the 43-day government shutdown—directly damaged economic growth and the livelihoods that depend on it. When federal spending collapses, the impact cascades through communities that rely on public investment, from contractors and federal workers to families depending on government services. The sharp slowdown in consumer spending signals that households are feeling the squeeze, pulling back on purchases as uncertainty grows. With energy prices rising due to geopolitical conflict and the next quarter's data still weeks away, working families face mounting economic headwinds at a time when strong public institutions and coordinated policy responses are most needed to stabilize growth and protect those most vulnerable to economic shocks.