U.S. economy expanded at just 0.7% in fourth quarter

Federal government spending and investment plunged at a 16.7% rate.

A person shops at a grocery store in Schaumburg, Ill., Monday, Feb. 9, 2026. [Photo: Nam Y. Huh/AP Photo, File]

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 growth of 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.

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