After posting its strongest growth in two years during the third quarter of 2025, the U.S. economy slowed more than expected during 4Q as it was significantly dampened by a record-long government shutdown and slower consumer spending.

The Commerce Department shared its preliminary 4Q real GDP report on Feb. 20, which was led by the top line figure of 1.4% annual growth (seasonally- and inflation-adjusted), while 3Q’s figure was slightly revised up higher to a robust 4.4%. 

Economists polled by the Wall Street Journal had forecasted 2.5% 4Q growth.

The report was originally scheduled to be released on Jan. 29, but was postponed due to the Oct. 1-Nov. 12 shutdown.

That shutdown — the longest in U.S. history — was a key driver of the 4Q deceleration, causing decreases in government spending that declined by 0.9% after a 0.4% 3Q increase. Consumer spending slowed 76 basis points sequentially to 1.58% growth and was most pronounced in nondurable goods with a 48-point deceleration. Meanwhile, net exports sunk 154 points near flat growth.

4Q real final sales to private domestic purchases — the sum of consumer spending and gross private fixed investment — increased 2.4% after a 2.9% 3Q increase.

On the pricing front, the price index for gross domestic purchases increased 3.7% during 4Q after a 3.4% in 3Q. The personal consumption expenditures (PCE) price index increased 2.9% after a 2.8% 3Q increase. Excluding volatile food and energy, the PCE index decreased by 2.7% after a 2.9% 3Q increase.

MDM’s Analysis

It’s easy to point to the government shutdown as the cause for 4Q’s GDP deceleration, but even when excluding it, growth still slowed, as evidenced by the 50-point decline in the measure for final sales to private domestic purchasers — its weakest since 1Q25.

Full Year

For all of 2025, real DGP increased 2.2% annually, after a 2.8% increase in 2024. The price index for gross domestic purchases increased 2.6% vs. 2.4% in 2024. The PCE price index increased 2.6%, matching 2024. Excluding food and energy, the PCE index increased 2.8% vs. 2.9% in 2024.