The US economy stumbles to 0.7% growth as the shutdown drags down GDP

WASHINGTON (AP) — The U.S. economy, hobbled by last fall’s 43-day government shutdown, advanced at an unexpectedly sluggish 0.7% annual rate from October through December, the Commerce Department reported Friday in a big downgrade of its initial estimate.

Growth in gross domestic product — the nation’s output of goods and services — was down sharply from 4.4% in last year’s third quarter and 3.8% in the second. And the fourth-quarter number was half the government’s first estimate of 1.4%; economists had expected the revision to go the other way — and show stronger growth.

Federal government spending and investment, clobbered by the shutdown, plunged at a 16.7% rate, hacking 1.16 percentage points off fourth-quarter growth.

For all of 2025, GDP grew 2.1%, solid but down from an initial estimate of 2.2% and from 2.8% in 2024 and 2.9% 2023.

In the fourth quarter, consumer spending grew at a 2% clip, down from 3.5% in the third quarter and the 2.4% the government had initially estimated. Business investment, excluding housing, increased at a healthy 2.2% pace, likely reflecting money being poured into artificial intelligence, but the increase was down from 3.2% in the third quarter and from the 3.7% advance in the Commerce department’s initial estimate.

Exports fell at a 3.3% annual rate in the fourth quarter, a bigger drop than the government first estimated.

A category within the GDP data that measures the economy’s underlying strength came in weaker than previously reported, growing at a 1.9% clip, down from 2.9% in the third quarter and from the first estimate of 2.4%. This category includes consumer spending and private investment, but excludes volatile items like exports, inventories and government spending.

“Following two consecutive strong readings for the second and third quarters, the economy was expected to soften heading into year-end. It’s now increasingly clear that the economy not only slowed but stumbled into the finish line,” Jim Baird, chief investment officer at Plante Moran Financial Advisors, said in a commentary. “The government shutdown was certainly a major factor in the loss of momentum, but a sharp decline in consumption growth also played a role.’’

The U.S. economy — the world’s largest — has shown surprising resilience in the face of President Donald Trump’s policies, including sweeping import taxes and mass deportations. But the war with Iran has driven up oil and gas prices and clouded the economic outlook.

Meanwhile, the American job market is in a slump. Last month, companies, nonprofits and government agencies cut 92,000 jobs. In 2025, they added fewer than 10,000 jobs a month, the weakest hiring outside recession years since 2002.

Friday’s GDP was the second of the three estimates of fourth-quarter growth. The final report is due April 9.