U.S. economic growth slowed more than expected in the fourth quarter amid disruptions from last year’s government shutdown and a slowdown in consumer spending, but tax cuts and investments in artificial intelligence were expected to support activity this year.
The Commerce Department’s Bureau of Economic Analysis said in its advance estimate of fourth-quarter gross domestic product on Friday that gross domestic product (GDP) grew at a 1.4% annual rate last quarter. Economists polled by Reuters had forecast gross domestic product to grow at a 3.0% pace. However, the survey was completed ahead of data on Thursday, which showed the trade deficit in December hit a five-month high.
The economy grew at a pace of 4.4% in the third quarter. The nonpartisan Congressional Budget Office (CBO) estimates that the government shutdown will shave 1.5 percentage points off fourth quarter GDP due to fewer services provided by federal employees, less federal spending on goods and services, and a temporary reduction in Supplemental Nutrition Assistance Program benefits.
CBO forecasts that most of the lost production will eventually be recovered, although between $7 billion and $14 billion will not.
Before the report was released, Donald Trump posted on social media that “The shutdown cost the United States GDP by at least two points. That’s why they’re doing it again in a smaller form. No shutdown! Plus, interest rates are low.”
The report, delayed by a record 43-day government shutdown, highlighted jobless economic expansion as well as a “K-shaped” economy, in which higher-income households are doing well while lower-income consumers struggle amid high inflation due to import tariffs and stalled wage growth.
Those conditions have created what economists and Trump’s opponents call an affordability crisis. Only 181,000 jobs were added last year, the fewest outside of the pandemic since the Great Recession of 2009, and fewer than 1.459 million in 2024.
Growth in consumer spending slowed from the third quarter’s brisk 3.5% pace. Economists say the spending has been largely driven by higher-income households and at the expense of savings as inflation has eroded purchasing power.
Economists predict the tax cuts will lead to larger tax refunds this year, which could provide relief to consumer spending. Economists estimate AI, including datacenters, semiconductors, software and research and development, could contribute a third of GDP growth in the first three quarters of 2025, offset by the hit from tariffs and reduced immigration. The old report will probably have no impact on monetary policy.
