U.S. Economic Growth Decelerates in Fourth Quarter of 2025
The United States economy experienced a notable slowdown in the final three months of 2025, with growth hampered by a six-week federal government shutdown and a marked reduction in consumer spending. According to a report released Friday by the Commerce Department, the nation's gross domestic product (GDP)—the total output of goods and services—increased at an annual rate of 1.4% in the October-December quarter.
Sharp Decline from Previous Quarters
This figure represents a significant deceleration from the robust 4.4% growth recorded in the July-September quarter and the 3.8% expansion in the quarter before that. The slowdown underscores the impact of the prolonged government closure, which disrupted federal operations and economic activity across various sectors.
Consumer spending, a critical driver of the U.S. economy, rose by just 2.4% in the fourth quarter. This is a substantial drop from the healthy 3.5% gain observed in the third quarter, indicating that households became more cautious with their expenditures amid economic uncertainties.
Puzzling Job Market Dynamics
The report also highlights a peculiar aspect of the current economic landscape: steady growth without corresponding job creation. The economy grew at a fairly healthy 2.2% pace for the entirety of 2025. However, a separate government report from last week revealed that employers added fewer than 200,000 jobs during the year—the lowest annual total since the COVID-19 pandemic struck in 2020.
Economists point to several factors contributing to this disconnect. The Trump administration's stringent immigration policies have sharply curtailed population growth, reducing the pool of available workers. This dynamic helps explain why the unemployment rate increased only marginally, from 4% to 4.3% last year, despite nearly stagnant hiring.
Business Uncertainty and External Pressures
Additional factors may be influencing corporate hiring decisions. Many businesses are potentially holding back on adding new positions due to uncertainty surrounding artificial intelligence. Companies are evaluating whether AI technologies might enable them to boost productivity without expanding their workforce.
Moreover, the financial burden of tariffs has eroded profits for numerous firms, possibly leading them to scale back hiring plans. These combined pressures are creating a complex environment for job seekers and employers alike.
Consumer Sentiment Remains Subdued
The current economic situation is further characterized by a paradox: growth remains solid, inflation has moderated slightly, and unemployment stays relatively low, yet surveys consistently show that Americans maintain a generally pessimistic outlook on the economy. In January, a key measure of consumer confidence plummeted to its lowest level since 2014.
Despite this gloom, consumers have continued to spend, thereby propelling economic growth. This spending, however, may be unevenly distributed. Some analysts describe a "K-shaped" economy, where upper-income consumers are driving a disproportionate share of expenditures.
Yet data from several major banks suggests that lower-income consumers are also increasing their spending, albeit at a slower pace. This indicates that while economic disparities persist, broader consumer activity remains a foundational element of growth, even amid widespread apprehension about the future.
