Economic Buzz: US economic growth slows sharply in late 2025 as inflation edges higher in early 2026
Gross domestic product (GDP), which measures the total value of goods and services produced in the economy, grew at an annual rate of 0.7% in the fourth quarter of 2025. This was lower than the earlier estimate of 1.4%. The figure also represents a significant drop from the 4.4% growth recorded in the previous quarter.
A major factor behind the slowdown was a prolonged government shutdown that led to a sharp 16.7% decline in government spending during the period.
For the full year 2025, the U.S. economy expanded by 2.1%, slightly lower than earlier estimates. By comparison, the economy grew by 2.8% in 2024.
The Bureau of Economic Analysis said the lower GDP estimate was mainly due to revised figures for consumer spending, government spending, and exports. Imports also declined by less than initially reported.
Consumer spending, which is a key driver of the U.S. economy, increased by 2% in the fourth quarter. However, this was weaker than the 3.5% growth recorded in the third quarter. The biggest downward revision came from spending on services, particularly healthcare.
Meanwhile, inflation data for January showed price pressures remaining above the Federal Reserve?s target.
The Personal Consumption Expenditures (PCE) price index ? the Fed?s preferred inflation measure ? rose 0.3% in January, bringing the annual inflation rate to 2.8%.
Core PCE inflation, which excludes food and energy prices, increased 0.4% in January and stood at 3.1% compared to a year earlier. This core figure, closely watched by Federal Reserve policymakers, was slightly higher than the December reading.
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