US economy grew at 0.5% in fourth quarter

The U.S. economy grew at a slightly slower pace than expected in the fourth quarter, according to the Commerce Department’s estimate.

The Bureau of Economic Analysis (BEA) on Thursday released its final reading of fourth-quarter GDP, which showed the economy grew at an annualized rate of 0.5% in the three-month period including October, November and December. 

That figure was lower than the expectations of economists polled by LSEG, who had estimated 0.7% GDP growth in the fourth quarter. The figure was initially estimated at 1.4% before it was lowered to 0.7% in the BEA’s first revision.

Taken together with the 0.6% GDP contraction in the first quarter of 2025, as well as the increases of 3.8% in the second quarter and 4.4% in the third quarter, the U.S. economy grew at an annual rate of about 2.1% in 2025.

FED’S FAVORED INFLATION GAUGE REMAINED ELEVATED IN FEBRUARY, DELAYED REPORT SHOWS

The BEA reported that the main contributors to the increase in real GDP in the fourth quarter were increases in consumer spending and investment. Those movements were partially offset by decreases in government spending and exports. Imports also decreased in the quarter.

The downward revision of the final Q4 GDP figure to 0.5% from the BEA’s first revision of 0.7% was primarily due to investment being revised down. The BEA said that within investment, the downward revision was led by private inventory investment, particularly wholesale trade, based on updated inventory data from the Census Bureau.

Real final sales to private domestic purchasers, which is the sum of consumer spending and gross private fixed investment, rose 1.8% in the fourth quarter after being revised down by 0.1 percentage point from the prior estimate.

FED OFFICIAL SAYS INTEREST RATE HIKE POSSIBLE AS GAS PRICES, INFLATION REMAIN ELEVATED

The release of the report was delayed by the partial government shutdown that ran from October until mid-November, which also affected the GDP data because of its impact on the federal government’s spending as well as consumer spending by federal workers whose paychecks were delayed.

BEA is unable to quantify the full effects of the shutdown, though it estimated that the reduction in federal government services reduced real GDP growth in the fourth quarter by about 1 percentage point. 

What experts are saying

“Despite a solid 2.1% expansion for the full year, 2025 will likely be remembered as the year that ‘could have been,'” said EY-Parthenon chief economist Gregory Daco. “A rare confluence of supply shocks – tariffs, tighter immigration, and elevated policy uncertainty – constrained activity, leaving growth below what strong organic productivity gains and rapid AI adoption would have otherwise supported.”

“The outlook for 2026 appears even less favorable. The Middle East conflict is set to exacerbate existing headwinds, with higher inflation, weaker real disposable income growth, and tighter financial conditions further weighing on economic momentum,” Daco added.

POWELL WARNS OF NEW ENERGY SUPPLY SHOCK AS GAS PRICES SURGE: ‘NO ONE KNOWS HOW BIG IT WILL BE’

Bret Kenwell, U.S. investment analyst at eToro, noted that the “third and final estimate for the fourth quarter came in below expectations – just as the first two readings did.”

“Annualized growth of just 0.5% missed estimates and came in well below economists’ original expectation of roughly 2.8% for the quarter. While it was a noisy quarter due to a record-long government shutdown, it’s still not an especially reassuring data point given the current backdrop,” Kenwell explained.

Michael Pearce, chief U.S. economist at Oxford Economics, said that the “downward revision to Q4 GDP is not a major concern as it was driven by the volatile inventory component. Gross domestic income, a better gauge of underlying activity, and gross domestic output of private business showed the core of the economy was still expanding at a healthy pace at the end of last year.”